July 2012 – Charity Reorganisation Schemes – Variation of Constitutions

Author: Mitchells Roberton
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  • Many charities operating today were set up many years ago. Things change, and sometimes things change in ways that could not have been anticipated when a charity first started. So, for one reason or another, the charity may no longer be able to function as originally conceived or, perhaps, could function more effectively if some changes were made.
  • Sometimes a charity’s original “constitution” (that is its governing document) will have anticipated the requirement for changes and have suitable provisions so that its constitution can be formally altered. But, with charitable trusts in particular, there is sometimes no provision or mechanism allowing for such changes.
  • Even if the charity’s constitution does not allow for changes all is not lost. Under the Charities and Trustee Investment (Scotland) Act 2005 (“the 2005 Act”) it is possible to apply to the Office of the Scottish Charity Regulator (“OSCR”) for their approval for various changes. This is a rather more straightforward process than applied before the 2005 Act came into force. Nevertheless, there are a few hoops to jump through in order to obtain OSCR’s approval.
  • One element of those hoops is a requirement for advertisement of the proposed changes so as to give members of the public a chance to make representations about the proposed changes. This aspect of things is being streamlined a bit by way of changes to The Charities Reorganisation (Scotland) Regulations 2007 (“the 2007 Regulations”). Even although these changes won’t have effect until 1st November this year the aim of this Note is to give an outline of:

(1) what is required for a standard “charity reorganisation scheme”, and

(2) the (minor) changes to the procedures which the amended 2007 Regulations will bring about.

(1) Outline: a standard “charity reorganisation scheme”

A charity that wants to reorganise must meet at least one of the “reorganisation conditions”. There are seven such conditions in all. Three commonly applicable are:

  • That some or all of the purposes of the charity have been fulfilled as far as possible or adequately provided for by other means (for example this might be relevant to a charity to support British veterans of the First World War).
  • That some or all of the purposes of the charity can no longer be given effect to (for example this might be relevant to a charity set up to support infirm widows of the local Parish over 65 who have fallen on hard times when, in an age of a State Pension and Benefits system, the need for such charity is much diminished).
  • And, that a provision of the charity’s constitution (other than a provision setting out the charity’s purposes) can no longer be given effect to or is otherwise no longer desirable (for example a charity’s constitution might provide only for ex officio trustees none of whom wish to continue to be involved with the charity).

If the charity is satisfied that one or more of the “reorganisation conditions” is met the next step is to make an application to OSCR.

The application to OSCR

There is an application form produced by OSCR which needs to be completed and returned with various documents including in particular:

  • a copy of the charity’s constitution;
  • a copy of the most recent statement of account of the charity;
  • a statement setting out the reasons why it is considered that one or more of the “reorganisation conditions” is met;
  • a statement setting out the reasons why the charity considers that the proposed reorganisation scheme will either (i) enable the resources of the charity to be applied to better effect for charitable purposes, or (ii) enable the charity to be administered more effectively; and
  • a draft of the supplementary trust deed or proposed new or amended constitution of the charity.

“Large charities” i.e. those with gross annual income of £250,000 or more are subject to certain additional requirements but this Note focuses only on “small charities” (i.e. whose gross annual income is less than £250,000) and “very small charities” (broadly speaking those with annual gross income of less than £1,000).

Publication of notice on OSCR website

  • OSCR will publish a summary of the reorganisation scheme on its website for between 4 and 6 weeks, and give anyone the chance to send in representations about the proposed changes within 14 days after the end of the publication period.
  • Any representations will be sent on to the charity.

OSCR’s decision

  • OSCR must make a decision as to whether to approve the proposed reorganisation scheme within 6 months of the latest date of receipt for representations following OSCR’s publication of the scheme.
  • In coming to its decision OSCR must take into account not only any representations made by members of the public but also any response to those representations from the charity.
  • If the application is refused the charity may ask for a review of the decision and there is then scope for an appeal to the Scottish Charity Appeals Panel and ultimately the Court of Session.

After OSCR approval

  • Assuming OSCR approves the changes the charity must then formally make the changes in accordance with its constitution and notify OSCR it has done so.

(2) The changes to the procedures which the amendments to the 2007 Regulations will make

On the whole the changes are in points of detail. But there is one innovation that is worth particular comment here and that concerns the introduction of certain special provisions for “very small” charities.

  • A “very small” charity is one whose assets do not include any heritable property or shares in a private company and with a gross annual income of less than £1,000.
  • For very small charities OSCR may apply a simplified procedure for a reorganisation scheme.
  • Where OSCR applies this simplified procedure OSCR must write to the charity within 14 days of receipt of an application to confirm such procedure will apply.
  • There is then no publication requirement and so no scope for others to make representations about the proposed changes.
  • Instead OSCR must simply make a decision about the application within 13 weeks of its receipt and tell the charity within a further 7 days.

Note: This material is for information purposes only and does not constitute any form of advice or recommendation by us. You should not rely upon it in making any decisions or taking or refraining from taking any action. If you would like us to advise you on any of the matters covered in this material, please contact Neil Mackenzienjm@mitchells-roberton.co.uk

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