Many in the sector will be familiar with this Bill, currently making its passage through the House of Lords, under its earlier name, the Draft Protection of Charities Bill (initially published on 22nd October 2014). The aim of the Bill is to protect charities in England and Wales by giving the Charity Commission new and strengthened powers to tackle abuse of charities more effectively and efficiently, in order to maintain the “high public trust in charities”. Much of this responds to requests from the Commission itself for increased powers.
Of most interest and potential significance are the provisions within the Bill which expand the Commission’s powers so that the Commission will have the power to:
- issue a statutory warning to a charity or charity trustee, which could be as a result of a breach of trust or duty, as well as for failure to comply with either a requirement of the Charities Act 2011 or an order or direction of the Commission. A recipient of the statutory warning would be given an explanation of the reasons for the warning and an opportunity to make representations. This should provide the Commission with an additional tool which would sit in between issuing guidance and the opening of an inquiry.
- suspend a trustee for up to 24 months. This would extend the length of time over which a trustee can be suspended from the current limit of 12 months to a maximum period of 24 months.
- take into account an individual’s misconduct or mismanagement outside of the charity with which he or she is involved insofar as that conduct is relevant to the administration and management of that charity.
- during an inquiry, establish a scheme in relation to a charity where there is either evidence of misconduct or mismanagement or a need to protect charity property or secure its proper application. The criteria for removal of a trustee or office holder would not change: the Commission would still require evidence of both misconduct or mismanagement and a need to protect charity property.
- direct trustees to wind up a charity in certain circumstances and transfer resources elsewhere.
- direct the application of charity property in the event that the person is either “unwilling” or “unable” to do so, rather than just “unwilling” as is currently the case.
- disqualify a person from being a trustee or in relation to all charities, specified charities or classes of charity. The proposed legislation gives the Charity Commission a new power to disqualify an individual from acting as a trustee; would tighten criteria for people to become a charity trustee or senior manager; extend the existing criteria which disqualify a person from being a charity trustee to people with unspent convictions for criminal offences including terrorist offences, money laundering and various other offences; as well as extending disqualification to cover senior management positions in charities. This is a power which has long been sought by the Commission and should give it more teeth as a Regulator; but it has for obvious reasons attracted attention from those concerned that it could be misused and who called for reassurance that appropriate safeguards will be put in place. The Commission has sought to provide reassurance by publishing a paper outlining the Commission’s “initial thinking” about how the power would be used. The Commission has said that, if the Bill becomes law, it will revise the guidance further and hold a public consultation on its approach before it is finalised.
The Bill will also include a statutory power for trustees to make social investment (investments which pursue both a financial and a social return). Until now there has been uncertainty in the sector about the ability of trustees to engage in social investment which may have put some trustees off making social investments in the past. The inclusion of this provision in the Bill follows recommendations by the Law Commission published in September 2014, that the power to make social investment and the duties of charity trustees in this regard should be set out in statute.
It is encouraging to see the Bill being introduced into this Parliamentary session early on and that the Government has noted some of the earlier recommendations made to it. The Bill has been welcomed by the Commission, particularly the power to disqualify individuals from acting under certain circumstances, since the Commission will be able to “protect charities from being run by individuals who are clearly not fit to do so”. It has now been 18 months since the National Audit Office’s report on the regulatory effectiveness of the Commission was published. Whilst it was critical of the Commission’s failure to do enough to identify and tackle abuse of the charitable status, which “undermines its ability to meet it statutory objective to increase public trust and confidence in charities”, the NAO acknowledged that there were deficiencies in the Commission’s powers and recommended that the Government should seek to close legislative loopholes to address these deficiencies. The Commission clearly hopes that the Bill in its current form will enable it to do so and will strengthen its focus and impact on tackling abuse within the sector. However, there remains some way to go before the new legislation is enacted.