2005 Chapter 10

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These notes refer to the Charities and Trustee Investment (Scotland) Act 2005 (asp 10) which received Royal Assent on 14 July 2005

CHARITIES AND TRUSTEE INVESTMENT (SCOTLAND) ACT 2005

EXPLANATORY NOTES

INTRODUCTION

1.     These Explanatory Notes have been prepared by the Scottish Executive in order to assist the reader of the Charities and Trustee Investment (Scotland) Act 2005 (asp 10) which received Royal Assent on 14 July 2005. They do not form part of the Act and have not been endorsed by the Parliament.

2.     The Notes should be read in conjunction with the Act. They are not, and are not meant to be, a comprehensive description of the Act. So where a section or schedule, or a part of a section or schedule, does not seem to require any explanation or comment, none is given.

THE ACT

3.     The Act is in 4 Parts.

4.     These are:

• Part 1 - Charities

• Part 2 - Fundraising for benevolent bodies

• Part 3 - Investment powers of trustees

• Part 4 - General and supplementary.

5.     Commentary explaining the provisions introduced by each Part is provided below.

COMMENTARY ON PARTS

PART 1: CHARITIES

Chapter 1 - Office of the Scottish Charity Regulator

6.     Section 1 establishes the Office of the Scottish Charity Regulator (OSCR). Firstly an office (or position) known as the "Office of the Scottish Charity Regulator" is established. A separate body corporate is then established. This is a body with a legal personality, known as "the Scottish Charity Regulator". This body is then appointed to be the holder of the office that was initially established. Because the charity regulator has already commonly become known as OSCR, this is the term that is used throughout the Act to mean the officeholder.

7.     Section 1 also sets out OSCR's general functions. These are to determine charitable status, keep a public register of charities, encourage facilitate and monitor compliance with charity legislation, investigate misconduct and take remedial or protective action if necessary and to advise or make proposals to the Scottish Ministers on matters relating to its functions. Subsection (9) gives OSCR a duty to have regard, so far as is relevant, to principles which appear to it to be best regulatory practice in performing its functions, particularly principles under which regulatory activities should be proportionate, accountable, consistent, transparent and targeted only at cases in which action is needed.

8.     Schedule 1 deals with the detailed membership and other constitutional arrangements for the Scottish Charity Regulator, with paragraphs 2 and 3 providing for the Regulator's members and the chair and deputy being appointed by the Scottish Ministers (after normal public appointment procedures). Certain categories of person are disqualified from being members (e.g. MSPs, MPs, MEPs, office holders of the Scottish Administration or others which may be prescribed by an Order made by the Scottish Ministers). The terms and conditions (including remuneration and allowances) of the Regulator's members may be determined by the Scottish Ministers. Paragraph 4 allows the Regulator to appoint a chief executive and other employees, under terms and conditions which require the Scottish Ministers' approval. Although not covered by the Act, it is intended that OSCR will become a non-Ministerial office holder of the Scottish Administration (i.e. a non-Ministerial department) and that the employees will be civil servants. The formal mechanism for this will be by a section 104 order made by Westminster under the Scotland Act 1998, following enactment of this Act.

9.     Section 2 stipulates that OSCR must prepare and publish an annual report on the exercise of its functions, send a copy to the Scottish Ministers and lay a copy before the Scottish Parliament.

Chapter 2 - Scottish Charity Register

10.     Section 3 provides that OSCR must keep a public register of charities, reviewing it from time to time, and keeping it up to date. The section specifies certain information that the register must contain for each charity. This mandatory information is:

• the name of the charity;

• the principal office or the name and address of one of the charity trustees (unless, under subsection (4), OSCR is satisfied it is necessary to protect an individual or the charity's premises);

• the charity's purposes; and

• certain other information (including whether it is a designated religious charity or national collector).

11.     In addition the register must include the dates of any directions or notices under the Act that have been given to the charity by OSCR until the direction or notice has been complied with, when it is to be removed.

12.     The Scottish Ministers may (under section 3(3)(f)) make regulations to add to the mandatory information to be held on the register and OSCR may also decide (subsection 3(g)) to include other information if it sees fit.

13.     Section 4 sets out the information that must be provided to OSCR by an applicant wishing to be entered on the register. This information includes the information required to be shown on the register and also a statement of the applicant's purposes, constitution and the most recent statement of account (if there is one). As a result of section 5 the register will only hold details of organisations that OSCR considers meet the charity test (see below) and do not have inappropriate names. The Scottish Ministers may make regulations (section 6) to set out further details relating to the form of application for the register and the process by which OSCR will determine applications.

14.     When the Register is initially set up, section 99 requires OSCR to enter on it every existing Scottish Charity, i.e. all bodies recognised at that time by HM Revenue and Customs as being eligible for charitable tax relief. Although this does not affect OSCR's power to remove a charity from the register under section 30 (section 99(2)).

The charity test

15.     Section 7 sets out the charity test that must be satisfied by every body on the register. The test consists of two parts: the purposes of the body must be exclusively charitable and it must provide public benefit, either in Scotland or elsewhere. Unlike in the previous charity definition, none of the charitable purposes are assumed to provide public benefit. In addition, the body must not be able to distribute or apply any of its property for a non-charitable purpose, must be free from the control of Scottish Ministers or Ministers of the Crown, and must be non-political. However subsection 5 allows the Scottish Ministers to disapply, by affirmative order, either or both of the first two of these criteria.

16.     The charitable purposes listed in section 7(2) are:

a)     prevention or relief of poverty;

b)     advancement of education;

c)     advancement of religion;

d)     advancement of health;

e)     the saving of lives;

f)     advancement of citizenship or community development;

g)     advancement of the arts, heritage, culture or science;

h)     advancement of public participation in sport;

i)     the provision of recreational facilities or the organisation of recreational activities, with the object of improving the conditions of life for the persons for whom the facilities are primarily intended (this purpose is intended to preserve the charitable purpose covered by the Recreational Charities Act 1958);

j)     advancement of human rights, conflict resolution or reconciliation;

k)     the promotion of religious or racial harmony;

l)     the promotion of equality and diversity;

m)     advancement of environmental protection or improvement;

n)     the relief of those in need by reason of age, ill-health disability, financial hardship or other disadvantage;

o)     advancement of animal welfare; or

p)     any other purpose that may reasonably be regarded as analogous to any of the preceding purposes.

Further detail is provided by subsection 3 which clarifies that:

• the advancement of health (d) includes the prevention or relief of sickness, disease or human suffering;

• the advancement of citizenship and community development (f) includes rural or urban regeneration, and the promotion of civic responsibility, volunteering, the voluntary sector or the effectiveness or efficiency of charities;

• in (h), sport means sport which involves physical skill and exertion;

• the provision of recreational facilities or activities (i) applies only in relation to those which are primarily intended for persons who have need of them by reason of their age, ill-health, disability, financial hardship or other disadvantage or are available to members of the public at large or to male or female members of the public at large (again, this seeks to preserve the terms of the Recreational Charities Act 1958);

• the relief of those in need in (n) includes the relief given by the provision of accommodation or care; and

• the advancement of any philosophical belief (whether or not involving belief in a god) is analogous to the purpose for the advancement of religion in (c).

Public benefit

17.     Section 8 sets out certain criteria to which OSCR and the courts must have regard when determining whether a body provides public benefit as part of the charity test. The first criterion covers the extent of any benefit gained by members or other persons or the disbenefit incurred by the public as a result of the body's functions compared to the benefit to the public. The second criterion covers the extent to which any condition (including any charge or fee) restricting persons from obtaining the benefits from a body's functions may be unduly restrictive if only a section of the public can receive those benefits.

18.     Section 9 gives OSCR a statutory duty to issue guidance, following consultation with representatives of the charitable sector and such other persons as it sees fit, on how it determines whether a body meets the charity test.

Charity names and status

19.     Section 10 sets out the circumstances when a body's (including SCIOs - see section 49) name may be considered to be objectionable. These are to ensure that an applicant's, charity's or proposed SCIO's name is not too similar to that of another charity, likely to mislead the public, give the impression (falsely) that the body is connected to the Government, local authority etc., or is offensive.

20.     Under section 11 a charity must inform OSCR at least 42 days before it wishes to change its name, and unless OSCR directs the charity not to do so within 28 days, permission is deemed to have been granted. OSCR may refuse to the change only if it considers the proposed name falls within the circumstances describes in section 10 as objectionable.

21.     If a charity considers that another charity has a name too similar to its own, it can ask OSCR to review the names (section 12). If satisfied that there may be confusion, OSCR must direct either or both of the charities to change its name and must remove from the register a charity which refuses.

References to charitable status

22.     Section 13 places restrictions on the way that bodies may use the term "charity" to describe themselves in order to protect the charity brand and attempt to avoid confusion for the public. Under section 13(1), only bodies entered in the Scottish Charity Register ("the Register") may refer to themselves as a "charity", a "charitable body", a "registered charity" or a "charity registered in Scotland". Bodies registered elsewhere, such as with the Charity Commission in England and Wales, often currently refer to themselves as "registered charities", but under this Act they will not be able to do this in Scotland unless they are also registered with OSCR or specifically note where they are registered, for instance that they are "registered in England and Wales" or "with the Charity Commission".

23.     Under section 13(2), bodies on the Register which are established under the law of Scotland, or are managed or controlled in Scotland may use the terms "Scottish Charity" or "registered Scottish charity" to describe themselves. This provision aims to distinguish those charities which are directly registered with OSCR and based in Scotland from those which may be based elsewhere but also operate here.

24.     A large number of "foreign" charities (i.e. registered outside Scotland) may only have relatively minor operations in Scotland, such as sending a newsletter or information to Scottish members, awarding a grant to a body in Scotland or merely advertising in a newspaper which may also be seen in Scotland. Under section 14, as long as they are registered elsewhere, do not occupy premises or carry out activities in an office, shop etc. in Scotland, these bodies may operate in Scotland using the term "charity" without having to register with OSCR only if they also refer to the territory where they are registered as charities. Hence such a body might, for example, refer to itself factually as a "charity registered in England and Wales" a "French charity" or a "charity recognised by the HM Revenue and Customs" in Northern Ireland.

25.     It is intended that all charities will have to clearly label their main documents to show that they are a charity and are registered (with names as set out above). Section 15 confers powers on the Scottish Ministers to make regulations requiring this and setting the detailed provisions about which documents must state a charity's name etc. This will allow the Scottish Ministers to vary the documents to be labelled over time as different forms of communication or finance are introduced or to exempt certain charities or types of charity from some of these requirements. Initially, after allowing sufficient time for existing stocks of documents to be used up, it is expected that charities will have to label documents such as cheques, credit cards and annual reports, headed notepaper, raffle tickets and other advertising material etc.

Changes

26.     Many changes that a charity may wish to make to its constitution may only be made with the consent of OSCR. This is because these changes could affect a charity's status on the Scottish Charity Register. Section 16 lists those changes requiring OSCR's consent as those amending the charitable purposes in its constitution, amalgamating with another body, winding up or dissolving. If the change is to amend its purposes, the charity must give OSCR 42 days notice of the proposed change and may not carry out the change without OSCR's consent. For the other changes, unless OSCR is willing to consent to the changes it must, within 28 days of being informed of the charity's proposals, either refuse consent to the change or direct the charity not to make the change for a set period (up to 6 months) whilst it makes a determination. If neither of these actions is taken, OSCR is considered to have consented to the proposal.

27.     Several other types of change which a charity may wish to make to its organisation may be made without OSCR's consent (section 17), but the charity must inform OSCR within 3 months of the action being taken. These changes include: a change to the charity's principal office or name of charity trustee specified on the register, other changes to details on the register, changes to its constitution (apart from its purposes), any amalgamations, winding up or dissolving actions taken by the charity (following OSCR's agreement). Similarly OSCR must be informed of changes within 1 month following orders by the court to wind up or put the charity into administration or appoint a receiver.

Removal from the Register

28.     Section 18 requires OSCR to remove a charity from the Scottish Charity Register within 28 days of receiving an application from the charity itself requesting this, and to confirm in a notice that this has been done.

29.     Under section 30(1), one of the regulatory actions available to OSCR upon completion of inquiries about a charity is that it must remove a charity from the register if it is satisfied that the charity no longer meets the charity test. If OSCR, following inquiries into a charity, gives a direction to the charity to take certain steps, but the charity fails to comply, OSCR must remove the charity from the register.

30.     However, even when a body has been removed from the Register, any assets held by the body before it was removed which were raised to be used for charitable purposes are effectively "locked" for charitable uses. Section 19 protects such assets, ensuring that several provisions of the Act continue to apply to them, despite the charity's removal from the register. The following provisions continue to apply:

• Sections 28 and 29: power of OSCR to make inquiries about charities (i.e. the body holding the protected assets), and to obtain documents and information;

• Sections 31(1) to (3), and (5) to (9): powers of OSCR following inquiries;

• Section 32: notices and directions under section 31;

• Section 33(2) to (5): reports on inquiries;

• Section 34(1) to (3), (5)(a) to (c) and (f) to (h), (7) and (10)(b): powers of Court of Session;

• Section 37: on charging expenses for a transfer scheme; and

• Chapter 6: sections 44 and 45 on charity accounts.

31.     These provisions allow OSCR to continue to oversee the use of the locked assets even though the body holding them is no longer a charity. It can investigate and take action if required. It can ensure that the body continues to prepare accounts showing how the assets are being used.

32.     Under section 19(4), OSCR may apply to the Court of Session for a scheme to transfer the locked assets of a charity removed from the register to another charity. A transfer scheme may only be approved if the Court is satisfied that it is needed to protect the assets or secure their proper application for the original purposes, and that such a transfer is the better way for this to be achieved. Section 19(8) allows the Scottish Ministers to exclude certain property which they specify in an affirmative order from this section. The Scottish Ministers would have to have made an order specifying either items or types of property or property owned by particular persons which come under this description. This would, for instance, allow the Scottish Ministers to ensure that national assets owned by a charity removed from the Register could not be transferred to other bodies, potentially being lost to the nation.

Chapter 3 - Co-operation and information

Co-operation

33.     Section 20 provides a statutory duty for OSCR to seek to secure co-operation with other relevant regulators, which are defined in subsection 2 as public bodies or office-holders with functions that are similar to those of OSCR, or conferred on them to allow them to regulate persons for other purposes. This provision is intended to ensure that where possible the burden of dual or multiple regulation on the same body by several regulators is minimised.

34.     Subsection (3) requires OSCR and any other regulator which has been authorised (under section 38(2)) to carry out OSCR's functions to co-operate with each other so far as is consistent with their proper functions.

35.     Subsection (4) emphasises that there is no requirement for either party co-operating in relation to this section to share information with anyone that they are prevented from disclosing by any other law. Hence no information that is restricted from disclosure by the Data Protection Act may be disclosed by one regulator to another.

Public access to Register

36.     Section 21 requires OSCR to make the Scottish Charity Register available for public inspection. It is expected that OSCR will use its web-site to make the register widely and freely available and to publicise its arrangements, but it will also be available, free, at the OSCR principal offices and otherwise as it thinks fit. This may, for instance, mean providing information from the register in Braille, large-print or other medium as requested. OSCR may also charge a fee, limited to the cost of supply, for preparing information if this is provided by alternative means or in other places.

Power of OSCR to obtain documents and information

37.     Under section 22 OSCR may require, by notice, any charity to provide it with documents or information which it requires for the charity register, unless the charity would be entitled to refuse on the grounds of confidentiality in the Court of Session.

Entitlement to be given information by charities

38.     Under section 23 a charity must provide to any person who makes a reasonable request, a copy of its constitution or latest statement of accounts (in what ever reasonable format that it is requested). The charity may charge a fee, limited to the lesser of the cost of supply or a maximum fee that the Scottish Ministers may set out in an order. However, the Scottish Ministers may make an order that exempts charities from this duty (section 23(3)).

Sharing information

39.     Section 24 sets out provisions to allow OSCR to disclose information to other public bodies or officeholders (e.g. regulators) and for them to disclose information to OSCR for purposes connected with their functions. Subsection (1) permits OSCR to disclose information to any public body or office holder. Subsections (2) and (3) allow several Scottish public bodies to disclose information to OSCR to assist it in its functions. Subsection 4 provides that such disclosures are subject to any obligations as to secrecy or other restriction on disclosure of information however imposed[a]

40.     Section 25 allows the Scottish Ministers to designate any public body or officeholder, whether in Scotland or not, such that OSCR may provide information to them (subsection (3)(a)) or may designate any Scottish public authority to allow it disclose information to OSCR (subsection (3)(b)), without any obligation as to secrecy or other restriction on disclosure of information. This section also removes restrictions on disclosing information to OSCR by a charity trustee, independent examiner or auditor of a charity's accounts. Under section 26, it is an offence (with a penalty set at level 5 (currently £5000) or imprisonment up to 6 months on summary conviction) to provide false or misleading information to OSCR knowingly or to alter, conceal or destroy it deliberately.

Chapter 4 - Supervision of charities

Inquiries about charities etc.

41.     Section 28 gives powers to OSCR to make inquiries about charities, other bodies or a person appearing to represent themselves as, or as acting for, a charity, for either general or particular purposes. Under subsection (3), OSCR may direct a person or body in regard to its inquiries, not to undertake specified activities for a period of up to 6 months. Subsection 6 provides that it is an offence to fail to comply with such a direction without reasonable excuse and subsection (7) sets the level of fine to be level 4 (currently £2500) or imprisonment not exceeding 3 months, or both.

Power of OSCR to obtain information for inquiries

42.     Under section 29, OSCR may require, by notice, any charity to provide it with documents or information which it considers necessary for its inquiries, unless the charity would be entitled to refuse on the grounds of confidentiality in the Court of Session. Subsection (4) prevents OSCR from disclosing any information or explanation obtained under this section except for the purposes of its inquiries. Subsection (5) allows OSCR to pay a person expenses reasonably incurred in providing information under subsection 1. Subsection (6) provides that it is an offence to fail to comply with a notice without reasonable excuse and sets the level of fine to be level 4 (currently £2500) or imprisonment not exceeding 3 months, or both.

Powers of OSCR where a charity no longer meets charity test

43.     Section 30 requires OSCR to take actions if it appears to OSCR, as a result of inquiries, that a charity no longer meets the charity test. OSCR must either direct the charity to take steps OSCR considers necessary to meet the test (which may include applying to OSCR for approval of a reorganisation scheme to reform the charity's constitution) or remove the charity from the register. If the charity fails to comply with the direction OSCR must remove it from the register.

Other powers of OSCR following inquiries

44.     Section 31 sets out further powers which OSCR may use following inquiries which have been made under section 28. If it appears to OSCR that there has been misconduct (which section 106 defines as including mismanagement) in the administration of a charity or that it is necessary for action to be taken to protect a charity's property or ensure that property is used for charitable purposes, OSCR may (subsection (4)) suspend a charity trustee, agent or employee. However, subsection (10) prevents OSCR from suspending a person if it considers the person has acted honestly and reasonably in relation to the misconduct concerned and ought fairly to be excused. This is intended to ensure that OSCR only takes proportionate action in relation to any misconduct of which it becomes aware. Alternatively OSCR may (subsection (6)) give a direction to restrict the transactions or the payments that may be made in the administration of the body without OSCR's consent. This is intended to protect the assets of a charity or a body that was representing itself as a charity. OSCR may also (subsection (7)) direct a financial institution (i.e. bank) or person holding property for a charity not to part with it without OSCR's consent. This will allow OSCR to ensure that assets raised for charitable purposes are not removed from a charity or body, protecting them for use for those purposes.

45.     Where it appears to OSCR, following inquiries, that a body has been falsely representing itself to be a charity, it may direct (section 31(5)) the body or person to stop doing so.

46.     Where it appears to OSCR, following inquiries, that a person has been claiming to act for a charity, it may (section 31(8)) direct the person to stop representing itself as a charity and to pay to the charity or body any assets that it had collected. OSCR may also direct a bank to pay sums collected for the charity or not to part with the property without OSCR's consent. This will ensure that OSCR has powers to require any assets raised in the name of a charity to be passed on to that charity.

47.     Section 32 provides details concerning the making and delivery of directions and notices in section 31. The maximum period for which OSCR may make directions is 6 months and if longer term action is considered necessary, OSCR may apply to the Court of Session for it to take action under section 34. Subsection (5) provides that it is an offence to fail to comply with a section 31 direction from OSCR, with the maximum penalty on summary conviction being level 5 on the standard scale (currently £5000) or maximum of 6 months imprisonment, or both.

Reports on inquiries

48.     Under section 33, if OSCR takes direct action following inquiries under section 28 it must prepare a report about the inquiry and send a copy to the person in respect of whom the inquiry was made and publish it as it sees fit. Under subsection (1)(b) OSCR must also (unless it has previously prepared a report on the subject of those inquiries) prepare a report if it is requested to do so by the person of whom the inquiries were made. A report prepared under this section by OSCR may relate to two or more inquiries, meaning that for instance, OSCR may prepare a single report on the results of inquiries into a group of charities or on an annual monitoring exercise involving all charities. It is assumed that such reports will be published on the OSCR website. OSCR may also prepare reports about other inquiries it makes under section 28. In preparing these reports, subsection (4) provides that OSCR must not identify the name of any person except those in respect of whom the inquiry is made or publish any particulars that could identify any person unless OSCR is satisfied that it is required to avoid impairing the effectiveness of the report.

Powers of Court of Session

49.     After making inquiries, OSCR may (as described in relation to sections 28 to 31) take certain actions directly for a maximum period of 6 months. However, under section 34, following its inquiries OSCR may apply to the Court of Session for certain other or further actions to be taken. If it appears to the court that misconduct has occurred, to protect the property of the charity or to ensure that property is used for the charity's purposes it may interdict the charity from taking prescribed actions, appoint a judicial factor to manage the charity's affairs, appoint a trustee to a charitable trust, suspend or remove a trustee or manager of a charity, freeze its bank account and property. If it appears to the court that a body has been representing itself as a charity when it is not, it may interdict the body from this action, and also take similar actions that it may do against a charity.

50.     Hence, if OSCR considers that action is required to be taken against a charity or body for longer than 6 months or to remove a trustee or appoint a factor, it must apply to the Court of Session.

Transfer schemes

51.     Section 35 allows the Court of Session, if OSCR applies to it, to transfer the assets of a charity, or a body that has been representing itself as a charity, to another charity on certain conditions set out in subsection (2). These are that there has been misconduct or the transfer is necessary to protect the charity's assets or merely to better achieve the charity's purposes.

Powers in relation to English and Welsh charities

52.     Section 36 allows the Court of Session to take action to protect the assets of a charity registered in England and Wales or a body not required to register (e.g. an exempt or excepted body under the Charities Act 1993) which are held in Scotland. The procedure is that the Charity Commission would request OSCR to apply to the court, and if satisfied that misconduct has taken place and that the assets require protecting, the court may order the person or institution holding the assets not to part with them without the court's consent.

Delegation of functions

53.     Section 38 allows OSCR to delegate certain of its regulatory functions to other regulators with devolved powers, hence the reference to a Scottish public authority with either mixed functions or no reserved functions. It may only delegate those functions relating to the supervision of charities in sections 28 to 35 (except section 30) (i.e. inquiries about charities, obtaining information and powers following inquiries). Where OSCR's functions are delegated, subsections (9 and 10) ensure that the information-sharing provisions provided by sections 24, 25 and 26and also the duty for auditors etc. to report matters (under section 46 to OSCR, also apply to the body to which the functions are delegated.

54.     Section 38(1) places OSCR's powers for its regulatory functions in relation to charitable registered social landlords in Scotland with the Scottish Ministers. It is intended that this function will be carried out by Communities Scotland on the Scottish Ministers' behalf.