Charities (Protection and Social Investment) Act 2016

Just when we had got used to the Charities Act 2011, which had consolidated much of the earlier charity legislation into one place, along comes another Act that amends the 2011 Act as well as the provisions of the Charities Act 1992 regarding fundraising.

This new Act became law in March this year and its substantive provisions are being brought into effect by two separate commencement orders, the first of which was made in July 2016. The Act seeks to address three areas of charity law that have, over the last few years, been perceived as needing immediate attention:

• The Charity Commission’s range of statutory powers to tackle abuse and mismanagement in charities was found to have some gaps and weaknesses, particularly in the light of the apparent failure by the Commission to tackle the Cup Trust, which involved a complex arrangement to take advantage of Gift Aid relief. These gaps, along with some technical loopholes and areas where the existing law had perhaps not kept pace with changes in the threats to the charity sector, are now addressed by additional powers and measures to protect charities.
• Following a review by the Law Commission, it was decided that it would be helpful to clarify that most charities will have a power to make social investments – that is to say, investments that directly further a charity’s aims, while possibly still securing a financial return – and to identify the duties with which trustees must comply when exercising this power.
• In the light of recent controversies over intrusive fundraising methods used by or on behalf of charities, amendments were introduced to the draft legislation that will:
  • require charities that use professional fundraisers or that enter into commercial participation agreements to include additional information in the contracts that govern these activities;
  • require larger charities to include statements about fundraising activities in their annual reports; and
  • add to the Government’s reserve powers to impose a statutory system of fundraising regulation if the existing self-regulation arrangements prove to be inadequate.

New powers

The Charity Commission will have a new power to issue (and publish) official warnings to charities and their trustees where it believes that there has been misconduct or mismanagement, including breaches of trust or duty by trustees. The thinking behind this new power is that it can be used to tackle problems that do not necessarily justify the opening of a formal inquiry. This is to come into force on 1 November 2016, following a consultation by the Commission earlier in the Summer.

The Commission will also be able to suspend trustees and to disqualify them from holding any trusteeships. The particular circumstances in which the Commission will be able to use the disqualification power are:

• where a person who has been cautioned for an offence against a charity or in the administration of a charity for which a conviction would result in automatic disqualification;
• where a person has been convicted of an offence in another country that is against, or in the administration of, a charity or similar body that, had it been committed in England and Wales, would lead to automatic disqualification;
• where HMRC has found that a person is not a ‘fit and proper person’ to be a manager of a body or trust;
• where a person was a trustee, officer, agent or employee of a charity and was responsible for, contributed to or otherwise facilitated misconduct or mismanagement in a charity;
• where a person was an officer or employee of a corporate trustee and was responsible for, contributed to or otherwise facilitated misconduct or mismanagement in a charity; or
• where a person has done something, whether in relation to a charity or in some other context, that is (or is likely to be) damaging to public trust and confidence in a charity or in charities generally.

The range of circumstances in which people will be automatically disqualified from acting as charity trustees will be extended to include criminal convictions relating to terrorism, money laundering and bribery, and those on the register of sex offenders will also be barred. Additionally, anyone who has been disqualified from acting as a trustee will also be barred from holding a senior management position in a charity.

Social investment

Coming into force on 31 July 2016, section 15 of the Act gives charities a power to make social investments. This power does not extend to charities established by or under an Act of Parliament or a Royal Charter, and is subject to a duty to consider obtaining advice on any proposed social investment and to be satisfied that the investment is in the interests of the charity, taking account of the benefits that are expected to flow from the investment. Trustees will also be required to review their social investments from time to time.

To coincide with this new power (and its accompanying duties) the Charity Commission has issued interim guidance at https://www.gov.uk/government/publications/charities-and-investment-matters-a-guide-for-trustees-cc14/charities-and-investment-matters-interim-guidance.

Many charities have historically made resources available to other organisations for charitable purposes, for example where a property is no longer needed for the charity’s own activities. In many cases, the charity will charge a nominal rent, or no rent at all; in other cases, a rent may be charged that is lower than a full market rent. It does not seem to have been intended that arrangements of this sort should now be classified as social investment, but it does appear from the Commission’s guidance that any new investment that is motivated in part by the prospect of a financial return for the charity may now be subject to the duties in the Act.

The new Charities SORPs also require information about a charity’s social investment policy to be included in the Trustees’ Annual Report.

Fundraising practices

In October 2016 the fundraising measures in the new Act come into force.

From October 2016, the rules about what has to be included in agreements with professional fundraisers and commercial participators will change slightly so that these agreements will cover the steps that are required to be taken to protect the public, including vulnerable members of the public.

Charities over the audit threshold will be required to include information about fundraising standards in their annual reports.

The new Fundraising Regulator was launched in the Summer of 2016 and proposals have been made for its funding by a levy. The Act provides that the Government will have a power to direct charities to provide funding for the Regulator and also provides that, if the Regulator is found to have failed in its task of policing fundraising, the Government can create its own statutory regulator or transfer responsibility for to the Charity Commission.

Charity law experts

IBB Solicitors’ specialist Charities team has over 50 years’ combined experience in delivering practical commercial advice to charities and not for profit organisations and those who work with them. For advice please call us today on 01895 207862 or email charities@ibblaw.co.uk.