Power to direct property to be applied to another charity

Charities (Protection and Social Investment) Bill [Lords] – in a Public Bill Committee at 2:30 pm on 15 December 2015.

Alert me about debates like this

Question proposed, That the clause stand part of the Bill.

Photo of Rob Wilson Rob Wilson The Parliamentary Secretary, Cabinet Office

Clause 8 should be fairly uncontroversial and, although I do not want to pre-empt the Committee, a fairly short one for us to consider. The clause amends an existing Charity Commission power in section 85 of the Charities Act 2011, which allows the commission to direct the application of charity funds or property when the person holding it is unwilling to apply the property for the charity’s purposes and the commission considers it necessary or desirable to make the order to secure the proper application of the charity’s property.

The purpose of the clause is to extend the power and enable the commission to make an effective direction in cases where the person holding the charity property may be willing but unable to apply the charitable property. The most common example of this problem is considered to be where financial institutions, such as banks, hold a charity’s property but are unable to comply with a commission direction to transfer that property because to do so without the consent of authorised account signatories would result in a breach of their contract with the charity, for which the bank could be held liable.

For example, a number of charities subject to a class inquiry ceased to operate but funds remained in their bank accounts. The commission’s powers relating to dormant accounts could not be used until a certain time had elapsed and there was a risk that the remaining funds could be misapplied by individuals on the mandate. Before the commission could use the power as currently worded, it had to establish that a number of banks were unwilling to apply the funds without an order of the commission. The banks were willing to apply the funds but were unable because of their contractual obligations to the account signatories. Amending section 85 to include “unable” as well as “unwilling” would allow the situation to be resolved swiftly and satisfactorily and the charitable funds to be properly applied for their charitable purposes.

Photo of Wendy Morton Wendy Morton Conservative, Aldridge-Brownhills

I am grateful to the Minister for sharing with us some examples of what the Bill will mean in practice, as he did in our discussion of the previous clause. Does he agree that the clause includes some sensible and proportionate measures that, in the round, are all part of helping to restore the trust that charities have in the public domain?

Photo of Rob Wilson Rob Wilson The Parliamentary Secretary, Cabinet Office

My hon. Friend makes a very good point. The clause is partly about restoring trust. It is also about making the Charity Commission work better and more efficiently and focus its funds on the areas where it can really make a difference—day in, day out. She is absolutely right.

Other barriers may make a person unable to comply with a commission direction of this type, such as restrictions in the charity’s governing document, which may prevent otherwise willing trustees or members from complying with this type of commission order because they are legally unable to do so. The Joint Committee recommended that we consider the inclusion of some form of statutory protection for a financial institution in cases where compliance with the direction from the commission in those circumstances might constitute a breach of its contract with a charity. The clause seeks to remove any obstacles by allowing the commission’s direction to overcome a contractual obligation owed to a charity.

Importantly, clause 8 continues to provide the specific, statutory protection for a financial institution—or, for that matter, any person holding the charitable property—in cases where compliance with the commission’s direction in those circumstances might constitute a breach of its contract with the charity. It is always important to consider the practical application of legislation and the clause will help the Charity Commission make use of the existing power more effectively.

Photo of Anna Turley Anna Turley Shadow Minister (Cabinet Office)

I echo the Minister’s concluding comments. As well as supporting the Charity Commission, the clause will support many charities that often struggle with individual trustees who may have been unable to take necessary action. This will enable the commission to step in and essentially fill a void where no one has had the power to tackle the issue.

Again, we welcome clause 8. It will amend the power in section 85 of the 2011 Act, which enables the commission to direct the application of charity property, where it is satisfied that a person is unwilling to apply it properly for the purposes of the charity and it is necessary or desirable to make an order to secure the proper application of that property.

The clause will amend section 85 in two ways. First, the commission will now have the power to direct the application of the property, if satisfied that the person is unable to apply it properly, as opposed to being unwilling. I appreciate the Minister’s examples of where that will be applicable. It is helpful to understand the case studies that will ensue.

Section 85 will be amended to ensure that compliance with the order will not result in a breach of contractual obligations to the charity. The explanatory notes and the Minister have provided an example of banks that act on client instruction. That is the most common example of the problem, where financial institutions hold a charity’s property but are unable to comply with the commission direction to transfer that property because doing so would result in a breach of their contract with the charity. That closes an important loophole and enables the Charity Commission and charities themselves to progress with securing the property.

As the Minister showed with his examples, clause 8 will continue to provide the specific statutory protection for a financial institution, in cases where compliance with a Charity Commission direction in these circumstances might constitute a breach of its contract with a charity. We support the clause and welcome it as a useful addition to the Bill.

Question put and agreed to.

Clause 8 accordingly ordered to stand part of the Bill.

Ordered, That further consideration be now adjourned. —(Sarah Newton.)

Adjourned till Tuesday 5 January at half-past Four o’clock.