Schedule 7

Charities Bill [Lords] – in a Public Bill Committee at 4:00 pm on 11 July 2006.

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Charitable incorporated organisations

Photo of Andrew Turner Andrew Turner Conservative, Isle of Wight

I beg to move amendment No. 170, page 114, line 32, at end insert ‘, with either—

(a) charity trustees only, or

(b) charity trustees and one or more members.’.

Photo of Joan Humble Joan Humble Labour, Blackpool North and Fleetwood

With this it will be convenient to discuss the following amendments: No. 112, page 115, line 1, leave out ‘shall have one or more’ and insert ‘need not have any’.

No. 113, page 115, line 2, after ‘members’ insert ‘(if there is a membership)’.

No. 114, page 115, line 11, after ‘members’ insert ‘(if there is a membership)’.

No. 115, page 115, line 14, after ‘membership’ insert ‘(if there is a membership)’.

No. 116, page 129, line 14, after ‘members’ insert

‘(if there is a membership and of the charity trustees if there is no membership)’.

No. 117, page 129, line 22, after ‘meeting’ insert ‘or, as applicable, charity trustees’ meeting’.

No. 118, page 129, line 25, after ‘members’ insert ‘or, as applicable, charity trustees’.

No. 119, page 129, line 26, after ‘meeting’ insert ‘or, as applicable, charity trustees’ meeting’.

No. 120, page 129, line 28, leave out ‘general’.

No. 121, page 129, line 29, leave out ‘general’.

Photo of Andrew Turner Andrew Turner Conservative, Isle of Wight

It is a great pleasure to see you in the Chair this afternoon, Mrs. Humble. Once again, the sun is shining and everyone is happy. They will be happier still to know that I shall not go into great detail about amendments Nos. 112 to 121. I had a word with the Parliamentary Secretary over lunch and he persuaded me that the amendment was not necessary because it was not possible to have an incorporated organisation such as a charitable incorporated organisation—in deference to the right hon. Member for Cardiff, South and Penarth—that did not have members. I hope that he will say a few words in explanation of that position, as a result of which I shall not press the amendment.

Photo of Ed Miliband Ed Miliband Parliamentary Secretary (Cabinet Office)

This is an incredibly complicated issue and members of the Committee will be pleased to  know that I shall not read out the 20-minute speech that I had prepared on the subject. Suffice it to say the problem is that, under English company law, there is not a company that does not consist of members. Trustees control and manage the charity under a CIO and members essentially form the charitable incorporated organisation. Although there is some sympathy with the intention behind the hon. Gentleman’s amendments, it is difficult—as our discussion made clear—to achieve what he seeks. There needs to be both trustees and members, although it is not particularly elegant in law. In light of the undertakings, I am happy to continue to discuss matters with him and any other representatives that he considers have important views on the matter, so I hope that he is willing to withdraw the amendment.

Photo of Peter Bottomley Peter Bottomley Conservative, Worthing West

I suspect that my hon. Friend the Member for Isle of Wight (Mr. Turner) is right to have understood whatever was said outside the Committee.

I want to raise an issue about the Charity Commission. Let us suppose that an incorporated charity had trustees with, say, two members and those members died. Would it be open to the Charity Commission to appoint people to be members so that the charity could continue or would the charity be dissolved? Again, the Minister might want to respond to such a question by correspondence. Such a thing is not likely to happen, but we always need to know what would happen in those circumstances.

Photo of Ed Miliband Ed Miliband Parliamentary Secretary (Cabinet Office)

That is an important question. What happens in such circumstances would be governed by the constitution of the charitable incorporated organisation. It would need to appoint new individuals to the organisation in the usual way.

Photo of Andrew Turner Andrew Turner Conservative, Isle of Wight

I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Photo of Andrew Turner Andrew Turner Conservative, Isle of Wight 4:15, 11 July 2006

I beg to move amendment No. 166, in schedule 7, page 115, line 5, at end insert—

‘(7) No person under the age of 18 years shall be appointed as a charity trustee of a CIO.’.

Photo of Joan Humble Joan Humble Labour, Blackpool North and Fleetwood

With this it will be convenient to discuss the following amendments: No. 167, in schedule 7, page 115, line 10, at end insert—

‘(ca) that its assets cannot be distributed to its members in their capacity as members, and’.

No. 168, in schedule 7, page 115, line 18, at end insert—

‘(ba) containing restrictions on the material benefits that the charity trustees of the CIO can derive from the CIO, and’.

No. 169, in schedule 7, page 115, line 35, at end insert—

‘(7) In subsection (2)(ba), “material benefits” means benefits which may or may not be financial, but which have a monetary value.’.

Photo of Andrew Turner Andrew Turner Conservative, Isle of Wight

Those same conversations over lunch revealed that the proposals in amendments Nos. 167 to 169 are a part of general charity law that does not need to be repeated. However, amendment No. 166 poses something of a quandary.

As Committee members know from the previous debate, a charitable incorporated organisation has both trustees and members, and those members are akin to members of a company. In company law, a member of a company can be of any age, although I understand that the Company Law Reform Bill will change the minimum age for membership of a company from birth to 16. However, the minimum age at which a person can be a trustee of a trust, let alone a charitable trust, is 18. Amendment No. 166 proposes that 18 should be the minimum age for being a trustee of a charitable incorporated organisation. There is some question about whether that is appropriate, given that a charitable incorporated organisation is a corporation as well as a charity. However, I hope that the Minister will take the issue away and think about it over the recess. Perhaps he will come up with a proposal on Report that commands general confidence.

Photo of Ed Miliband Ed Miliband Parliamentary Secretary (Cabinet Office)

The hon. Gentleman has, conveniently and usefully, drawn a genuine dilemma to our attention. Since the Bill was drafted—many moons ago, it seems now—the Company Law Reform Bill has stipulated that directors of companies can be as young as 16. However, in charity law, trustees must be 18. That poses a dilemma for us all. CIOs are charities rooted in some of the benefits of company law, but their reform lies in charity law. We shall take the issue away, think about it and report back to hon. Members.

Photo of James Duddridge James Duddridge Conservative, Rochford and Southend East

As the Minister knows, I raised in the House the issue of people with learning disabilities acting as trustees. I should like to link that with what we are discussing. Is there not a rationale for having different categories of trustees, and not only allowing people aged 16 to be trustees but introducing a category between a member and a trustee, particularly for charities that represent young people?

Helen Goodman (Bishop Auckland) (Lab) rose—

Photo of Helen Goodman Helen Goodman Labour, Bishop Auckland

This issue is highly problematic for charities working with young people which want young people to have a voice in how they are run. However, the case in respect of young people is different from that of people with learning disabilities. It is possible to insert people in advisory panels and management committees at a level below that of the trustee board, to avoid giving them the full legal responsibility of trusteeship. I just offer that thought.

Photo of Rob Flello Rob Flello Labour, Stoke-on-Trent South

I ask my hon. Friend the Parliamentary Secretary to bear in mind that the single biggest group of people  involved in volunteering activities are aged between 16 and 24. To my mind, to exclude them seems to move away from natural justice.

Photo of Ed Miliband Ed Miliband Parliamentary Secretary (Cabinet Office)

I may cause some alarm among my officials by saying this, but perhaps my hon. Friends are giving me the idea that we should strike a blow for 16 to 18-year-olds and move more generally towards 16-year-olds being eligible to be trustees. I throw that out not as a proposal, but more as a thought.

Photo of Alun Michael Alun Michael Labour, Cardiff South and Penarth

The way that my hon. Friend is engaging with the issue and responding on his feet to hon. Members’ comments is encouraging. I know from my previous incarnation that one of the reasons for the age change in the Company Law Reform Bill and accepting that we should choose the age of 16 was that we wanted to encourage a spirit enterprise and responsibility among young people. However, enterprise can be delivered through charitable organisations as well, and we also want to promote the spirit of charity. Perhaps we might consider a safeguard that protects the charitable institution but allows young people a genuine vehicle through which to engage in such activities. I encourage my hon. Friend to explore that.

Photo of Ed Miliband Ed Miliband Parliamentary Secretary (Cabinet Office)

I am grateful to my right hon. Friend for pointing that out. I warm to the idea the more we discuss it.

Photo of Martin Horwood Martin Horwood Shadow Minister (Environment, Food and Rural Affairs)

I encourage the Minister to warm to it some more. I am not sure that many safeguards are needed beyond those that already exist in the process of becoming a trustee in the first place, either by election or by peer group acceptance. I encourage him to move from a thought to a proposal.

Photo of Ed Miliband Ed Miliband Parliamentary Secretary (Cabinet Office)

I am grateful for the degree of consensus that we seem to be developing on the issue. I do not know whether Conservative Front-Bench Members share that enthusiasm.

I am advised that young people and others can participate through advisory councils without becoming legal trustees. Perhaps that answers the point made by the hon. Member for Rochford and Southend, East (James Duddridge), but it does not answer the question whether 18 or 16 is the right age for trustees, and whether there is not a case for bringing the Bill into line with the precedent set by the Company Law Reform Bill. As the Committee has developed that thought collectively, I shall take it away and think about it during the summer. I hope that the hon. Member for Isle of Wight will withdraw his amendment.

Photo of Andrew Turner Andrew Turner Conservative, Isle of Wight

It is important to place on record that the Company Law Reform Bill has raised the age at which one can become a trustee, thereby—to follow the logic of the right hon. Member for Cardiff, South and Penarth—excluding under-16s from participation in enterprise rather than enabling those between 16 and 18 to participate.

I suspect that a compromise will be achieved, but I have concerns about the consequences of such a  compromise on the other responsibilities of people aged 16 to 18. One of the responsibilities of trustees is personal liability, which might not be appropriate for those aged 16 to 18.

Photo of Peter Bottomley Peter Bottomley Conservative, Worthing West

I had planned to quote from this later on, but “Responsibilities of charity trustees: a summary”, a document published by the Charity Commission dated 18 January 2002, says:

“You cannot be a charity trustee if you are under 18 years of age (unless the charity is a registered company)”.

It is therefore possible to be a charity trustee under the age of 18 anyway, assuming that the Charity Commission’s guidance is accurate.

Photo of Andrew Turner Andrew Turner Conservative, Isle of Wight

That information was not available to me a couple of minutes ago. In the circumstances, I am grateful to the Minister for agreeing to consider the subject. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Photo of Andrew Turner Andrew Turner Conservative, Isle of Wight

I beg to move amendment No. 36, in schedule 7, page 116, leave out inserted section 69D.

Photo of Joan Humble Joan Humble Labour, Blackpool North and Fleetwood

With this it will be convenient to discuss amendment No. 129, in schedule 7, page 116, line 18, at end insert—

‘(7) No CIO shall describe itself as a charity or its Welsh equivalent.’.

Photo of Andrew Turner Andrew Turner Conservative, Isle of Wight

Amendment No. 129 is unnecessary, so we are making considerable progress on the schedule, but I think that amendment No. 36 is necessary. Proposed new section 69D of the 1993 Act will create no fewer than 37 new criminal offences. Subsection (1) will create eight offences affecting various people, including

“A charity trustee...or a person on the CIO’s behalf who issues or authorises the issue of any document”— tiddley pom, tiddley pom. There are other measures as well, making eight offences. We then go on to subsection (2), in which there is the opportunity for another 28 offences to be created. Subsection (3) creates one further offence. The commission has the power to warn, advise or remove anyone who does any of those things anyway.

I was struck by the findings of the Joint Committee, which states in its report that:

“Considerable concern was expressed about the possible imposition”

—by clause 28, although it applies just as well to new section 69D—

“of a criminal penalty on a trustee...Comments varied from ‘unacceptable’ at one end of the scale to ‘draconian’ at the other...Bircham Dyson Bell considered that criminal sanctions would introduce a further deterrent to volunteering and make it more difficult to recruit trustees...The Committee are concerned about a blanket imposition of a criminal penalty for breach of trust...We conclude that cases should only be pursued where a trustee acts dishonestly...We consider that the imposition of a criminal penalty would be counterproductive and recommend that the Bill should impose a civil penalty without leaving someone with the stigma of a criminal conviction.”

A huge number of offences have been created in a huge number of areas in a vast amount of legislation in  recent years. The Charities Bill should not be another vehicle for the creation of such offences. I agree with the Joint Committee that people are put off becoming trustees if they fear that a slip can lead to criminality or even prosecution. They may succeed in demonstrating that it was a slip and that they are not guilty, but they face the heartache, distress and disruption of their lives that results from facing a potential criminal charge. That is not something that we should do as lightly as it appears to have been done in the proposed section.

Photo of Martin Horwood Martin Horwood Shadow Minister (Environment, Food and Rural Affairs)

I confess that I am slightly puzzled by the amendment. The raft of new offences described by the hon. Gentleman are merely the equivalents for CIOs of parallel offences for companies. Any charity that is moving from company to CIO status will not be subject to more offences, risk of heartache, distress or other problems induced by the risk of criminality because they were liable for those very same, or parallel, offences under company law. The only possible circumstance in which the hon. Gentleman’s concerns might be relevant is one in which a charity that was not previously a company applies for CIO status. However, it is merely being saved the more onerous burden of company law. Although I am sure that the amendment is well intentioned, it does not seem to be justified and interferes with the CIO status as a less burdensome alternative to company status.

The hon. Gentleman did not mention amendment No.129, which is grouped with amendment No. 36.

Photo of Andrew Turner Andrew Turner Conservative, Isle of Wight

I said that it was unnecessary.

Photo of Peter Bottomley Peter Bottomley Conservative, Worthing West

When the Minister responds, will he explain what the word “body” means? It appears in this subsection.

Photo of Ed Miliband Ed Miliband Parliamentary Secretary (Cabinet Office)

No, is the answer to that, but I will endeavour to do so in due course.

Let me deal with the substantive points made by the hon. Member for Isle of Wight. If I may so, the hon. Member for Cheltenham spoke particularly eloquently in his explanation—more eloquently that I could. The new section replicates for charitable incorporated organisations offences that exist for charities that register under company law. The hon. Gentleman talked eloquently about the risks that people might fear, but I assure him that we are simply reproducing sanctions that already exist for charities under company law. Even for charities section 5(5) of the 1993 Act already provides that an offence regarding the signing of a document is a level 3 offence, which is the same as that under proposed new section 69D of that Act.

Although I understand what the hon. Gentleman is getting at, I assure him that a new set of draconian powers is not being taken. The provision simply reproduces the proportionate and sensible offences that already exist under current law in return for the duties and privileges of being connected with a charity.

Photo of Andrew Turner Andrew Turner Conservative, Isle of Wight 4:30, 11 July 2006

I cannot say that I am satisfied with that answer. My argument was well set out in the quotation from the Joint Committee’s report. It is hoped that many charitable organisations that are currently unincorporated will transfer and become CIOs and that some companies may become CIOs. That may impose onerous responsibilities on the trustees of charities. I have no doubt that they already have onerous responsibilities, but that is no excuse for perpetuating them. We ought to be considering how to make the lives of trustees easier, not more difficult.

I did not find an answer to the point that the Charity Commission can intervene if a trustee or a charity acts unlawfully.

Photo of Martin Horwood Martin Horwood Shadow Minister (Environment, Food and Rural Affairs)

I have great respect for Bircham Dyson Bell, which is associated with Fight for Sight, a charity of which I am a trustee. Perhaps the hon. Gentleman’s interpretation of its opinions is still a bit wide of the mark. For instance, if the provision did not exist, what would the hon. Gentleman suggest should happen to an organisation that pretends to have CIO status? It seems that it would escape sanction.

Photo of Andrew Turner Andrew Turner Conservative, Isle of Wight

If an organisation misrepresents itself, presumably it does so for a purpose. Usually, that purpose is to obtain some pecuniary advantage; it is not done entirely by accident, and if it is, the organisation is unlikely to be prosecuted. We have to look behind the action.

On the whole, the problem is not the trustees. In the hon. Gentleman’s example, the problem is that the people concerned are not trustees, or they are trustees of an organisation that is not a CIO. If a charity has not become a CIO, the commission will be able to intervene to correct it; and if it is not a charity but it is representing itself as one, the fact that it is likely to have an ulterior motive can easily be demonstrated.

I understand why the Minister does not wish to accept the amendment. The provision is a continuation of existing regulation, and some might describe it as over-regulation. It underlines the need to be a little more sensitive to the needs of lay people who become trustees.

If it is the will of the Committee, I shall not press the amendment to a Division, but I believe that we should consider every opportunity to deregulate and encourage people to take on such responsibilities. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Photo of Andrew Turner Andrew Turner Conservative, Isle of Wight

I beg to move amendment No. 37, in schedule 7, page 117, line 32, at end insert

‘and

(d) which shall be an organisation having limited liability and which shall not be subject to the provisions of the Companies Act 1985.’.

Photo of Joan Humble Joan Humble Labour, Blackpool North and Fleetwood

With this it will be convenient to discuss the following amendments: No. 123, in schedule 7, page 117, line 33, at beginning insert

‘Subject to subsection (3B) below’.

No. 38, in schedule 7, page 117, line 36, at end insert—

‘(3A) Any liability of the applicant entered into in pursuance of the charitable purpose of the CIO shall by virtue of this subsection become a liability of the CIO.

(3B) Any liability of a charity which becomes a CIO shall by virtue of this subsection become a liability of the CIO.’.

No. 124, in schedule 7, page 117, line 36, at end insert

‘, subject to any liabilities previously incurred in relation to that property.

‘(3A) Where—

(a) the applicants in subsection (3) are the charity trustees of an unincorporated charity whose purpose are substantially the same as those of the proposed CIO; and

(b) the unincorporated charity has passed a valid resolution to become a CIO registration of the CIO has the effect of converting the unincorporated charity into a CIO.

(3B) Where an unincorporated charity converting under subsections (3) and (3A) holds permanent endowment, registration of the CIO has the effect of appointing the CIO as corporate trustee of the permanent endowment.’.

No. 39, in schedule 7, page 120, line 35, at end insert—

‘(6A) Any asset or liability of the converting company or registered society shall by virtue of subsection (4) transfer to the CIO.’.

No. 29, in schedule 7, page 123, line 39, at end insert

‘or at the expiration of six months from receipt by the Charity Commission of the resolution.’.

Photo of Andrew Turner Andrew Turner Conservative, Isle of Wight

This is another group of amendments that have benefited from our lunch hour. We did not get anything to eat, but we made some progress. It is fair to say that we established that amendments Nos. 37 and 29 are not important enough for me to press to a Division. However, amendments Nos. 38 and 39, and perhaps Nos. 123 and 124 because they form part of the same general argument, illuminate a problem.

When an unincorporated organisation sets out to become a CIO, the process is usually that the CIO is established. The unincorporated organisation then hands over its assets, but what happens to its liabilities? Liabilities can be handed over only with the approval of the creditor. It is unlikely that the creditor would agree to transfer a debt from an unincorporated organisation, the trustees of which are individually liable for the full sum, to a body that has limited liability. We are left with the original charity with its liabilities, but no assets and the CIO with its assets, but no liabilities and no way of moving the liabilities to the CIO. That will not encourage bodies to transfer from being unincorporated organisations to being CIOs. Amendments Nos. 38, 39, 123 and 124 attempt to deal with the issue in different ways and I invite the Minister to look at the problem to see if he can come up with a solution.

Photo of Ed Miliband Ed Miliband Parliamentary Secretary (Cabinet Office)

The hon. Gentleman has raised a point of genuine difficulty because the Government are keen to encourage the use of the CIO and that partly will be about unincorporated charities moving to take advantage of the limited liability and the other positive aspects of becoming a CIO. However, there is no  question that we face the barrier that the hon. Gentleman set out rather clearly.

There is provision in proposed new section 69O to make the process of conversion as easy as possible but, as the hon. Gentleman says, it requires the setting up of a new organisation, the termination of the existing organisation and a transfer of the assets and liabilities, and that depends at least on authorisation from the people to whom those liabilities are owed. It is a problem to which a solution has not been found so far in the long and winding road under the Bill. Again, without wishing to ruin my summer completely or that of my officials who are working on the Bill, we shall keep looking at such matters and will respond positively to any ingenious suggestions that are made. With that assurance, I hope that the hon. Gentleman will withdraw the amendment.

Photo of Andrew Turner Andrew Turner Conservative, Isle of Wight

I am grateful for that reassurance. Indeed, I am grateful for the assistance of the Charity Law Association in bringing forward some of the problems. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Schedule 7 agreed to.

Clause 35 ordered to stand part of the Bill.