If the Charities Bill becomes law, it will change the rules on amending governing documents for unincorporated charities, including charitable trusts and charitable unincorporated associations.
The aim of the proposals is to align the rules for unincorporated charities with those for other charitable structures including corporate charities – charitable companies and charitable incorporated organisations (CIOs). Currently, the rules for changing the governing documents of unincorporated charities can be confusing, as different rules apply depending on whether your charity’s governing document (trust deed, constitution etc.) contains an express power of amendment, the size of your charity and what changes you want to make. The existing rules can be particularly burdensome for some unincorporated charities.
Most modern governing documents for unincorporated charities contain an express power of amendment which can be used changes to make changes to their governing document. However, unincorporated charities without an express power of amendment, or with a limited express power of amendment, may currently need to use one of the various statutory powers or seek assistance from the Charity Commission by way of scheme.
What do you need to know?
If your charity has an express power of amendment:
For unincorporated charities which have an express power of amendment in their governing document, this will often allow the charity’s trustees (often with the consent of members where there is a separate membership) to make any change to their governing document. Charity Commission prior consent is usually needed for changes to the charity’s purposes (often called the ‘objects’ clause), dissolution or trustee benefit provisions but not in relation to other changes.
In deciding whether to give consent to amend the charitable objects of unincorporated charities with an express power of amendment, the Commission currently applies the same (non-statutory) test as it does for corporate charities. In its guidance, the Commission says it checks that the new purposes are exclusively charitable, that the trustees’ decision to make the change is a rational one in the circumstances of the charity, and that the new purposes do not undermine or work against the previous purposes.
While the new rules will set out a new statutory test which the Commission must apply when deciding whether to consent to a change of purposes of a corporate charity, the new statutory test does not appear to extend to unincorporated charities using an express power of amendment (as opposed to those using the new statutory power – see below). It remains to be seen whether the Charity Commission will change its current approach to the factors it considers when deciding whether to consent to changes to an unincorporated charity’s objects made using an express power.
If your charity does not have an express power of amendment:
Currently, unincorporated charities without an express power of amendment must rely on various statutory powers when they want to make changes to their governing documents. The regime is complicated and the available powers depend on the type of change and the size of the charity.
The current rules are particularly burdensome for larger unincorporated charities who wish to change their purposes: it is usually necessary to ask the Commission to make what is known as a cy-près scheme and the regime for whether a scheme can be made is quite inflexible.
But the current rules are nevertheless quite straightforward for trustees of small unincorporated charities (generally speaking, those with income of £10,000 or less) wanting to change their objects: where the trustees are satisfied that it is expedient in the interests of the charity to replace the purposes and that the new purposes consist of or include purposes that are similar in character to those that are to be replaced, there is a statutory power for trustees to amend the purposes, subject to Commission consent.
There is also an existing statutory power for the trustees of all unincorporated charities to resolve to change administrative powers and procedures in their governing document (if the charity has members, the resolution must also be approved at a members’ meeting, with at least a two-thirds majority vote). But there are some grey areas around the use of this power.
The Charities Bill will introduce a new single wide statutory power for trustees of all unincorporated charities to amend their governing documents, replacing the various current statutory powers. Under the new power, Commission consent will be needed for certain changes including changes to:
- the charitable objects;
- the provisions affecting the property of the charity on dissolution;
- the provisions relating to trustee or member benefits; and
- the restrictions on permanent endowment.
Commission consent will also be needed to change provisions requiring third party consents or giving third party rights (such as a third party right to appoint trustees), unless the third party in question consents to the change or they no longer exist.
There will be a new statutory test which the Commission will apply when considering a request to give consent to amend charitable purposes of unincorporated charities using the new statutory power, which is the same as the new test being introduced for corporate charities. Under the new test, the Commission must have regard to:
- the purposes of the charity when it was established, if and so far as they are reasonably ascertainable;
- the desirability of securing that the purposes of the charity are, so far as reasonably practicable, similar to the purposes being altered, and
- the need for the charity to have purposes which are suitable and effective in the light of current social and economic circumstances.
Under the new statutory power, the thresholds which apply are higher than those which apply under the current powers. Under the new power, changes to a governing document must be passed:
- by at least 75% of the charity’s trustees where there is no separate membership;
- where there is a separate membership, by a majority of the trustees and by at least 75 % of the members voting at a general meeting (or, if not at a general meeting, unanimously).
Like the existing raft of statutory powers which are available to unincorporated charities, the new statutory power of amendment can also be used by charities with an express power of amendment instead of using their express power.
What action should you take now?
We anticipate that the new Bill will become law later this year or early next year but it is not yet certain exactly when the new rules will come into force.
If your charity has an express power of amendment: If you are a trustee of an unincorporated charity wishing to change your objects, you should think about whether to press ahead with this before the Bill becomes law. It is not yet clear what test the Charity Commission will apply in considering whether to give consent to a change to your objects once the new regime is in force. It’s possible that the Charity Commission could change its approach and choose to apply the principles of the new statutory test, which appears to be stricter.
If you have difficulty in using your existing express power and cannot currently use any of the existing statutory powers for any reason, and the changes are non-urgent, you could wait for the new power to come in, which may enable changes to be made more easily.
If your charity does not have an express power of amendment:
If you are a trustee of a larger unincorporated charity wishing to change your objects and would usually need a scheme, unless the changes are urgent, you are likely to want to wait until the new rules come in which should make it easier to change your objects.
If you are a trustee of a small unincorporated charity wishing to change your objects, you may want to press ahead now using the current statutory power for small charities to change objects as this appears more flexible.
If (regardless of your charity’s size) you are wishing to make administrative amendments such as changes to powers or trustee appointment processes, while the new power will clarify some current grey areas in relation to the existing statutory power, there is unlikely to be any benefit in your waiting for the new power to come in (and you’ll certainly want to push ahead now using the existing statutory power if the new thresholds for passing amendments are likely to prove problematic).
What action do you need to factor into future plans?
If you need to make amendments, particularly to amend charitable purposes, once the Bill is passed, make sure you look carefully at any new guidance from the Commission especially around the way in which it will apply the new test. It will also be important that you are clear on the thresholds that are required to pass resolutions to make changes under the new power.
The Charities Bill, which came out of Lord Hodgson’s review of the Charities Act back in 2012 and the Law Commission’s report on Technical Issues in Charity Law in 2017, is intended to make life easier for charities by reducing regulation and clarifying grey areas in the law. In this new blog series, we untangle the new Bill to pull out the key points your charity will need to know, action now and plan for. Catch up with all the blogs in the series here.
This information is necessarily of a general nature and doesn’t constitute legal advice. This is not a substitute for formal legal advice, given in the context of full information under an engagement with Bates Wells.
All content on this page is correct as of July 8, 2021.