THE CHARITIES ACT AND COMPANY LAW REFORM - WHAT SHOULD CHARITIES BE DOING?

These legal changes are important. However, for many organisations they will have little immediate impact. They do have a useful role in drawing people’s attention to what are often more pressing issues:

Firstly, too many organisations have constitutional documents which have not been legally reviewed and updated for far too long. As a result, they often:

do not reflect the current practices of the organisation;
impose unnecessary costs on the organisation;
fail to provide trustees with as much protection as is possible;
enshrine outdated and expensive procedures for holding meetings and communicating with members.

The Charities Act and changes to company law will provide further opportunities to simplify and update constitutions. However, given the lengthy and uncertain timetable for implementing these substantial pieces of legislation, organisations should not delay much needed reviews.

The Companies Act and the Charities Act also have implications for the duties of charity trustees and company directors. However, what is perhaps a more pressing need is for organisations to build into their annual cycle of trustee activity space for updating and training, which will pick up these and other issues as they arise. Such training needs to be linked to implementing and developing appropriate governance policies and documentation.

For further information, please contact:
JAMES SINCLAIR TAYLOR on 020 8394 6480 or at taylorj@russell-cooke.co.uk
TAMSIN PRIDDLE on 020 8394 6438 or at priddlet@russell-cooke.co.uk

MORTGAGES AND THE CHARITIES ACT 2006

Under section 38 of the Charities Act 1993, charities may enter into a mortgage securing a loan provided they have taken financial advice, on specified points, from an independent person with the appropriate skills.

In all other circumstances where a charity enters into a mortgage, it is necessary to obtain a Charity Commission order.

The problems with this regime are as follows:

Default repayment provisions in grant funding agreements secured by mortgages (“clawback”) have generally not been regarded as loans, and have necessitated an application to the Charity Commission for consent.
Other arrangements such as rights of another party to share in the eventual net proceeds of sale of a property secured by a mortgage always require Charity Commission consent.
Because advice must be given on the terms of the loan before the charity enters into the mortgage, it follows that an existing mortgage cannot be used to secure a new loan from the same lender. So, unlike commercial bodies, charities have to go through the inconvenience and expense of entering into a new mortgage every time a new loan arrangement is entered into.

Section 27 of the Charities Act 2007 attempts to deal with these problems. The new provisions should save charities considerable time and expense. However, it is not yet clear when the new provisions will come into force.

An announcement is expected in early 2007. Meanwhile, the current requirements continue to apply.

Before beginning a transaction involving a mortgage, charities should confirm at an early stage which procedure will apply and, if necessary, allow sufficient time for an application to the Charity Commission.

For further information, please contact:
JAMES MCCALLUM on 020 8394 6481 or mccalumj@russell-cooke.co.uk

THE COMPANIES ACT 2006 - THE KEY CHANGES

The Companies Act 2006 finally received royal assent on 8 November 2006. The majority of its provisions have not yet come into force, but are likely to become law between now and 1 October 2008. Some provisions relating to electronic communications came into force on 20 January 2007.

Key areas for change that are likely to affect charitable companies include:

Changes to the lay out of company constitutions
A new statutory list of directors’ duties
New laws relating to conflicts of interest
Removal of the requirement to hold AGMs
Removal of the obligation to appoint a company secretary
New rules on communicating with members using email or web-sites
New procedures for passing written resolutions
New rules for proxy voting
Notice for all general meetings to be reduced to 14 days
New rules relating to accounts, audits and reports

The ability to make electronic filings with Companies House.

The Act can be accessed at www.opsi.gov.uk/acts/acts2006a.htm.

When and exactly how these changes will take effect is not yet clear. Up to date advice should be sought when amending a company’s constitution to ensure that any changes made are compatible with the new law and take full advantage of the opportunities for making company management simpler, cheaper and more effective.

For further information, please contact:
TAMSIN PRIDDLE on 020 8394 6438 or at priddlet@russell-cooke.co.uk

COMPANY INFORMATION: E-MAIL AND WEBSITES

Changes to company law came into force on 1 January 2007 which clarified that a company must give certain information about itself in email correspondence, on its website and on order forms. This is just an extension of the existing requirements for companies to provide certain information on letters, invoices etc.

In brief, companies must include the following information about themselves on all business letters, order forms and now also on all emails, faxes and websites:

The Company’s full name
Country of registration
Registered number
Registered office
If the company does not have the word “limited” in its name, the fact that it is a limited company.

In addition, a company must give its full name on all business letters, order forms, notices, official publications, cheques, endorsements, invoices, receipts, promissory notes, bills of exchange, letters of credit and conveyances - whether in hard form, or sent by email or fax. The full name should also be given on the company’s website.

All this information must be given in a legible form, so you should ensure that the print is not too small.

Companies, officers or other persons who don’t comply with this may be fined.

This is in addition to the requirement to include reference to charitable status and information under other legislation such as distance selling regulations and VAT number.

For further information, please contact:
TAMSIN PRIDDLE on 020 8394 6438 or at priddlet@russell-cooke.co.uk

COMPANIES ACT 2006 - ELECTRONIC NOTICE OF MEETINGS

On 20 January 2007, some provisions of the Companies Act 2006 came into force which govern electronic communications between a company and its members.

If a company wishes to post notice of a meeting on its website, it is still necessary to obtain the consent of the individual members to receiving notice in this way. However, it is now possible (if the correct procedures are followed) to assume that a member has consented if he or she does not reply, within 28 days, to a written request from the company. If the company is going to rely on this “deemed consent” approach, this must be permitted by the company’s articles or by a members’ resolution.

This is intended to make the process simpler and cheaper for companies. However, if you post a notice on a website, it is still necessary to notify the members that the notice has been posted. If you intend to send this notification to a member by email, the member must have given his or her individual, express consent to receiving notices by email – you can’t rely on “deemed consent”.

If you wish to send out the notice to a member by email, again the member needs to have given his or her individual, express consent to this.

New provisions also came into force on 20 January 2007 governing electronic communications by members to the company. Essentially, when a notice of a meeting or proxy document includes the company’s electronic address, members may send any communications relating to that meeting to that address.

For further information, please contact:
TAMSIN PRIDDLE on 020 8394 6438 or priddlet@russell-cooke.co.uk or
JAMES SINCLAIR TAYLOR on 020 8394 6480 or taylorj@russell-cooke.co.uk

FORTHCOMING EVENTS:

SEMINAR: Reform of Company Law and Charity Law: Implications for Charities’ Constitutional Structures.

A review of the major changes brought in by the Charities Act and changes in company legislation looking at the choice of structure for an organisation, keeping the constitution up to date and incorporating modern developments.

Tuesday 6 February 2007, 8 Bedford Row, London WC1, 5.30 - 7.30 pm

SEMINAR: Charities as Landlords

Covering the key issues to consider when negotiating a lease including condition and repair, insurance, the formalities of granting a tenancy, dealing with difficult tenants and tenant default.

Wednesday 28 February 2007, 8 Bedford Row, London WC1, 5.30-7.30 pm

CONFERENCE: Governance for the Arts

We are holding a full day conference on legal and financial issues for arts organisations ‘Governance for the Arts - Setting the Tone for the 21st Century’. For the brochure and booking details, see:
http://www.russell-cooke.co.uk/downloads/Governance_for_the_arts.pdf
or call DSC on 08450 77 77 07

Friday, 23 March 2007, Directory of Social Change, London NW1 2DP

OTHER EVENTS:

For a full list of forthcoming events see the Charity Team’s web-site at:
http://www.russell-cooke.co.uk/serv_charities_events.htm

The Charity Team
Russell-Cooke Solicitors, 2 Putney Hill,
Putney, LONDON
SW15 6AB

Tel: 020 8789 9111
www.russell-cooke.co.uk

This material does not give a full statement of the law. It is intended for guidance only, and is not a substitute for professional advice. No responsibility for loss occasioned as a result of any person acting or refraining from acting can be accepted by Russell-Cooke.

To subscribe to this monthly legal update please visit http://www.russell-cooke.co.uk/serv_charities_intro.htm and fill in the online request form, or send an email including your name and email to, charitylegalupdates@russell-cooke.co.uk

An archive of past updates can be found at http://www.russell-cooke.co.uk/serv_charities_updates.htm

If you would like to reproduce some or all of our updates in your own publication, contact Shivaji Shiva on 020 8394 6486 or e-mail on shivas@russell-cooke.co.uk

JANUARY 2007