Our charity lawyers have been using the month of July to provide practical advice to charity trustees and those working with charities.
This week, in the last article of our five-part series, Associate, Ellie Williams, examines more changes brought in by the Charities Act 2022 including new flexibility when amending governing documents and dealing with failed appeals.
Amending governing documents
The intention of these changes is to align the rules which apply to different types of charities. Currently, there are different rules which apply to different charity structures.
- Charitable companies’ purposes (expected to come into force Autumn 2023): If a charitable company wishes to make any amendment to the objects clause in its Articles of Association, the current position is that it will require Charity Commission consent as a “regulated alteration”.
The Charities Act 2022 (“the ChA 2022”) amends the current rules so that an alteration to the statement of a charitable company’s objects which does not alter the substance of its charitable purposes will not be a “regulated alteration” that requires prior consent from the Charity Commission. This aligns with the rules which apply to CIOs.
- Consent for changes to purposes (expected to come into force Autumn 2023): A new statutory test will apply when the Charity Commission is making a decision about whether to consent to a request to amend charitable purposes for CIOs, charitable companies and unincorporated charities. This change is intended to harmonise the requirements for each type of charity because the current process for each is different. The Commission must have regard to:
- the purposes of the charity when it was established;
- the desirability of securing that the purposes of the charity are, so far as reasonably practicable, similar to the purposes being altered; and
- the need for the charity to have purposes which are suitable and effective in the light of current social and economic circumstances.
This change has been welcomed by some as it will align the requirements for different types of charity, but incorporated charities will now have an additional hurdle to overcome because, at the moment, they simply have to make a reasoned argument to the Charity Commission to change the objects clause.
- Amending a CIOs constitution (expected to come into force Autumn 2023): Under the current rules, amendments to a CIO’s constitution take effect only when registered with the Charity Commission. The ChA 2022 will bring the process for CIOs in line with the process currently followed by charitable companies. Amendments to a CIO’s constitution will take effect on the date that the members’ resolution containing the amendment is passed, or on a later date specified in the resolution. The exceptions to this are that any “regulated alteration” will not take effect until the prior consent of the Charity Commission has been obtained and any changes to the objects will not take effect until the Charity Commission has registered it.
- Unincorporated charities making amendments (expected to come into force Autumn 2023): The ChA 2022 introduces a wide new statutory amendment power for unincorporated charities to amend any provision in their governing document by resolution of the trustees. This is subject to the Charity Commission’s prior written consent for certain types of amendment (including but not limited to altering charitable purposes, the dissolution clause and provisions relating to trustee benefits). The trustees must be satisfied any amendments are in the best interests of the charity and must not make an amendment which would result in the charity no longer being a charity. The rules specify how this power should be exercised and the date upon which the amendments will come into effect.
This is a welcome introduction for unincorporated charities because the current rules for amending governing documents can be confusing and depend on various factors including the size of the charity, what powers are already in the governing document and the type of change to be made.
- Public notice of amendments requiring Charity Commission consent (expected to come into force Autumn 2022): The ChA 2022 will give the Charity Commission a new discretionary power to give public notice (or to require the charity trustees to give public notice) of any amendment which requires the Charity Commission's consent.
- Royal Charter charities (expected to come into force Autumn 2022): A new power will be introduced to allow Royal Charter charities to amend their governing documents subject to the consent of the Privy Council. Currently, Royal Charter charities without an express power in their governing document have to petition for a Supplemental Charter which is time consuming and costly. There are some exceptions to this new power and the explanatory notes in the Charities Bill advise that Royal Charter charities speak to the Privy Council at an early stage to obtain approval in principle to the proposed amendment before it is put to a vote.
Cy-pres schemes and proceeds of fundraising appeals (expected to come into force Autumn 2022)
The current rules in this area are cumbersome and the changes made by the Charities Act 2022 aim to relax the rules and introduce more flexibility in relation to appeals for charitable funds that either cannot be carried out at all (“initial failure”) or which subsequently fail.
- Relaxation of rules: the rules introduced by the Charities Act will enable donations given for an appeal that cannot be carried out (“initial failure”) to be applied cy-pres (ie to be applied for another charitable purpose as close as possible to the purpose for which the funds were donated) rather than returned to donors (or paid into court if the donors cannot be found). This can happen in four circumstances, for example, where a donor cannot be identified or found.
- Removal of 6 month claim period: currently donors have six months to make a claim for the return of their donation where a charity has applied the proceeds of a failed appeal cy-pres. This will be removed by the Charities Act.
- Cy-pres scheme: this will no longer be required where trustees resolve that the proceeds of a failed appeal for funds are applied for a different charitable purpose. (A scheme is a legal document which the Charity Commission can use to alter the purposes for which charitable funds can be used). This power will be available on the initial failure of an appeal (usually when insufficient funds are raised) and a subsequent failure (usually where there is a surplus after the purpose of the appeal has been achieved). The Charities Act sets out the considerations the trustees will need to have regard to when making their decisions and how and when resolutions will be effective.
Carefully preparing fundraising materials to make it clear that if any appeal raises too much or too little that the funds will be used for other purposes helps to avoid such issues occurring in the first instance. However, these changes should make dealing with these issues easier if or when they arise.
This article is an introduction to the changes made by the Charities Act. Charities should be cautious in applying these new provisions as they are complex and technical. Appropriate professional advice should be sought to ensure that they are applied in line with the statutory provisions as there is significant risk if they are not followed correctly.
