The Office of the Scottish Charity Regulator (OSCR) - the body responsible for regulating charities in Scotland - published its annual report this week, and in it called for a review into the rules governing reorganisation of charities.
Since 2005 charities who wish to restructure/reorganise, but whose constitutions did not allow them to, have been turning to the provisions of Chapter 5 of the Charities and Trustee Investment (Scotland) Act 2005 (the Act). These rules allow a charity to seek approval from either OSCR or the court for re-organisation, provided they meet a series of tests. A re-organisation can take the form of amalgamation with another charity, a transfer of the charity's assets or a variation to the charity's constitution.
However, OSCR has called for a review of these rules saying that "after four years of working with this part of the Act, OSCR is very conscious of the difficulties around its interpretation and application. It is OSCR's view that the policy underpinning this chapter in the act needs to be reassessed and the provisions redrafted."
Although OSCR does not elaborate any further, it is clear Chapter 5 may get the further overhaul that some have been calling for.
The re-organisation provisions are one way in which a charity can seek to restructure in circumstances where their constitutions do not allow it. An alternative is to apply to the Court of Session under its Cy Pres jurisdiction, though this is seen as complex and expensive by charities.
OSCR's concerns may well be that the Chapter 5 provisions, and subsequent Regulations, do not go far enough in achieving a flexible reorganisation mechanism fit for charities, both in terms of expense and simplicity. If processes can be further simplified and costs kept to a minimum, charities can focus yet more on delivering their objectives.
OSCR may also be recognising, particularly with regard to small charities, that charitable objectives might be better served via simplified processes for transferring/amalgamating assets into/with another charity. This is potentially of increased importance in the current economic climate.
The OSCR reorganisation route under Chapter 5 rules is important to charities. Given the current economic climate, where a charity's constitution prevents it from acting (including carrying out its purposes), it is essential that the charity is able to resolve matters quickly, be it through restructuring, amalgamation or transfer/use of funds.
Changes under the Public Service Reform (Scotland) Act 2010 relevant to reorganisation, effective as of 1 August 2010, gave OSCR greater flexibility to appoint charity trustees (to view our previous e-update please click here) but OSCR's statement suggests further flexibility is required.
At the time of writing only 3 Scottish charities were currently registered as undergoing the re-organising process with OSCR. Is this indicative of the complexity/expense of the re-organisation rules?
Whether the Scottish Government take heed of OSCR's plea for re-organisation reform is awaited with interest.
Disclaimer
The material contained in this article is of the nature of general comment only and does not give advice on any particular matter. Recipients should not act on the basis of the information in this e-update without taking appropriate professional advice upon their own particular circumstances.