The Charities (Protection and Social Investment) Bill (the Bill) has been working its way through Parliament with its third House of Commons debate due to have taken place by the time this update is released. The Bill contains a range of additional powers for the Charity Commission (Commission) to use to help ‘combat charity mismanagement’ more efficiently. Within the charity sector there have been concerns raised as to the scope of these powers and lack of clarity on the circumstances in which they will be used.

Issuing warnings

The Bill gives the Commission a statutory power to issue warnings to a charity and charity trustees. This power to issue a warning has been modified since the previous draft of the Bill. The Bill now requires the Commission to give prior notification to charities that it intends to issue a warning.

However, there is no minimum notice period required and so the the Commission could simultaneously issue a warning and make it public that a warning has been issued. This means the charity in question would have no chance to respond to the warning before it is issued. 

If the charity were able to respond prior to the publication of the warning, this could potentially put the Commission at ease and the Commission could make the response to  the warning public at the same timeas the publication of the warning itself.

However, the provisions as currently drafted might mean that the charity would suffer adverse publicity before it even has a chance to properly consider or respond to the warning.

Content of a warning

The Commission may issue a warning when it considers that a charity or charity trustee has committed a ‘breach of trust or duty or other misconduct or mismanagement’.

With no further definition or criteria, this wording is extremely broad and potentially open to various interpretations. This leaves room for a significant difference of opinion between the Commission and a charity as to whether the action (or inaction) by the charity amounts to a breach of trust or duty or other misconduct or mismanagement.

There is also no limitation on what the warning may contain. The Commission might choose to specify how it expects a charity to rectify what it considers a breach. This has been seen by many as problematic, particularly as the Joseph Rowntree Charitable Trust case confirmed that under present law, the Commission cannot direct trustees to act in a particular way.

Lack of appeal

The Commission has said that this power is essential to ensure it fulfils its statutory duty to ‘increase public trust and confidence in charities’. But it is arguable that with these increased powers should come increased responsibility on the Charity Commission to act in a rational, consistent and reasonable manner, and that the obligation to do so should be clear and precise in the legislation.

Charities are able to appeal with respect to the exercise of other Commission powers such as opening inquiries and freezing a charity’s assets. However, the new power to issue such warnings is not moderated by the ability of a charity to appeal.  A lack of appeal against such a sweeping power is notably out of step with the other powers given to the Commission by the Charities Act 2011.

If a charity disagrees with the content of a warning the only way to seek redress is by instigating a judicial review process. Such action must be taken with caution, as what has always been a complex and expensive task now has the additional risks of liability to pay the Commission’s legal costs if unsuccessful.

Charity governance

This new power again emphasises that the Commission is turning away from adviser and champion of charities and focusing on its regulatory role, which will have even more teeth as a result of the new provisions. Charities must be alert to the Commission taking a more proactive and firmer approach. In such an environment, trustees need to ensure effective governance and that they have the capacity and evidence to respond quickly to questioning. In doing this trustees should:

  • understand their trustee duties and responsibilities;
  • ensure that any delegation to staff is appropriately scoped and granted;
  • demonstrate they have read and followed (or be prepared to justify why they did not) Charity Commission guidance that relates to each decision; and
  • keep full and accurate records of decision making.

Andrew Studd and Victoria Ehmann

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