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New Proposals to Streamline Charity Law - Chipping Off the Barnacles

on Friday, 15 September 2017.

Author of the review of the Charities Act 2006, Lord Hodgson has likened the regulatory burden on charities, to barnacles on a ship. Leave the barnacles in place and the ship slows down.

Yesterday, the Law Commission published a report containing no fewer than 43 barnacle-busting recommendations.

Barnacle-Busting

Lord Hodgson used his barnacle metaphor again yesterday to welcome the Law Commission report and to underline the importance of the nearly 500 pages of dense, technical material.  

That technical density is a symptom of the root problem. The complexity of the rules doesn't just stall charitable endeavour, it can stifle meaningful debate. We were delighted to be engaged as legal consultants to the Law Commission giving expert views on the issues discussed in their paper and the Bill. On Thursday the report and Bill were published and should be celebrated, moving reform up the Government agenda and even embracing Lord Hodgson's memorable metaphor within its pages.

To put the barnacles in some sort of context, the Law Commission believe that their recommendations on the rules about charities disposing of land could save the sector £2.8m per year and the Law Commission's charities project already has form for success, having had their proposals on social investment enacted last year.

Key Areas of Proposed Reform

Four headline areas are:

Disposing of Land

Restrictions on selling land have ancient origins and survive today on the justification that they protect charities and trustees from falling into rash decisions about valuable assets. The reality that many charities find, trying to put together commercial transactions, is a tight legal maze, full of dead-ends.

Navigating the maze usually requires charities to commission advice from a surveyor. The law contains a long list of required content for the advice including counting and measuring rooms individually. Buyers are left wary of charities, because the law leaves them uncertain that they can enforce contracts against charities. Liquidators, administrators and receivers face imponderable questions about what rules apply to them.

Proposed reform has the potential to brush this away. Costs could be reduced by allowing charities to take more focussed, less formulaic advice from a wider range of professionals. Removing uncertainty for buyers and insolvency practitioners should lead to cheaper, smoother transactions.

Making Changes to Charities

Charities change and develop, but keeping their constitutional rules up to date is another matter. A charity's flexibility to adapt its constitutional rules depends on an accident of how it was founded. The law is a piecemeal mix of widely differing powers and different regulatory oversight. Trusts, charter bodies and statutory charities tend to have the least flexibility to adapt to change.

In their most ambitious proposals, the Law Commission propose a programme of grand unification. The gist of reform is to clarify and expand the powers of amendment available so that most charities will enjoy comparable, broad powers of amendment subject to a single standard of regulatory oversight.

The winners will include trusts, many of whom will find that they have greater scope to change their purposes and more clarity about how they change other provisions. CIOs and companies on the other hand may lose some flexibility, as changes to their purposes become subject to a test for closeness to the original.

Litigation

The Charity Commission is a gateway through which charities often have to pass on the way to litigation. Some litigation can't be started without the Charity Commission. The Charity Commission is a common port-of-call for trustees who want comfort about meeting litigation costs from charity funds. This gateway system is fine if the Charity Commission is neutral, but just doesn't work if it has conflicting interests - like being the defendant to the charity's claim.

Improvements include being able to approach the court for permission to bring proceedings if you can't approach the Charity Commission, and being able to ask the Tribunal for comfort on costs when taking Tribunal proceedings against the Charity Commission.

Ex Gratia Payments

Charities can't make ex gratia payments, that is, payments which do not further purposes and which do not settle claims. Because life is not simple, there are plenty of situations when charities are morally bound to make payments on an ex gratia basis, creating an industry of Charity Commission work authorising each one on an individual basis.

Proposals for change should see charities able to make ex gratia payments without the Charity Commission up to a certain threshold and correcting a quirk of statutory drafting which required the personal involvement of the charity trustees themselves in each decision.

Conclusion 

The fact that charity law is beset by technical oddities and inconsistencies is important. Legal hurdles and dead-ends have real-world consequences for business and innovation in the sector. Sometimes it is just a cost or time burden, sometimes it prevents progress. The Law Commission propose some very welcome changes to shed decades of accumulated barnacles.  

VWV have been proud to provide legal consultancy to the Law Commission on this project.


For further information, please contact Con Alexander in our Charity Law team on 0117 314 5214.

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