Scottish Charitable Incorporated Organisations (SCIOs) Working Group
Minutes of the first meeting, Tuesday 2nd September, Victoria Quay, Edinburgh
Present:
Chair: Richard Dennis, (Scottish Government)
Secretary Anita Popplestone (Scottish Government)
Quentin Fisher, (Office of the Scottish Charity Regulator (OSCR)
Stuart Cross, (Charity Law Research Unit, University of Dundee)
Marieke Dwarshuis, (Office of the Scottish Charity Regulator (OSCR)
Ken Butler(Scottish Drugs Forum)
Siân Ledger(Scottish Government)
Professor Alex McDougall( Institute of Chartered Accountants of Scotland; HW Chartered Accountants)
Gavin McEwan(Law Society of Scotland; Turcan Connell)
Stephen Philips(Law Society of Scotland; Burness)
David Brownlee(Citizens Advice Scotland)
Steve Kent, (Edinburgh Voluntary Organisations Council)
Adrienne Airlie(Institute of Chartered Accountants of Scotland; Martin Aitken & Co)
Dr Patrick Ford, (Charity Law Research Unit, University of Dundee)
Martin Sime(Scottish Council for Voluntary Organisations (SCVO)
Minutes
Welcome and Introductions
1. The Chair opened the first meeting by welcoming members and thanking them for agreeing to participate in the Scottish Charitable Incorporated Organisation (SCIO) Working Group. The Group had been set up in recognition of the fact that the requisite expertise and experience lay outwith the Scottish Government. The practical aim of this project is to design a form of incorporation that is:
- attractive to charities;
- will help to preserve or enhanced public confidence in the charity sector;
- as credible as existing forms to those doing business with the sector;
- workable for OSCR; and
- viable in terms of Parliamentary time, in that it would not require new or amended primary legislation.
Approval of remit and membership of the Working Group (paper 2)
2. There was some unease expressed about the use of the term "whether" in the draft remit, as it might be seen as implying a preference to forgo implementation of those sections in the Charities and Trustee Investment (Scotland) Act 2005 that provided for Scottish Charitable Incorporated Organisations (SCIOs). It was noted that as the SCIOs provisions were set out in primary legislation, their establishment reflected the will of the Scottish Parliament and some members who were involved in the development of the legislation did not wish to revisit arguments fought and won during the passage of the Bill. However, concerns were also expressed that exploring the "how" of the remit might result in a form that was not workable, rendering implementation pointless. The Group agreed to remove the terms "whether and" on the understanding that if its deliberations on the "how" concluded that a simpler and more cost-effective form of incorporation for charities was not possible or practicable, then the value of implementation would need to be reassessed. However, this would need to be weighed against the resultant disparity with other UK jurisdictions, which seem to be pressing ahead with implementation. It was also suggested that the phrase "charities in Scotland" be changed to "Scottish charities" to reflect the fact that cross-border charities would not be among the SCIO constituency and this was agreed.
Action: Working Group remit was agreed as follows:
"To advise Scottish Ministers on how best to implement a regime for Scottish Charitable Incorporated Organisations (SCIOs), that is cost-effective, as straightforward as possible and tailored to the needs of Scottish charities."
3. The Group agreed to Chatham House rules, on the basis that members would consult more widely within their organisations and stakeholder communities on issues that might arise during the Group's deliberations. The Chair proposed that papers be published on dedicated SCIOs Working Group webpages, subject to any restriction relating to future publication of particular papers, and this was agreed.
Action: Scottish Government to develop webpages through which Working Group papers could be accessible.
4. It was suggested and agreed that STEP Scotland should be invited to nominate a representative to join the Working Group. The Chair indicated that confirmation was awaited that a further member would join for future meetings and once agreed, details would be circulated to other members. The Group otherwise agreed that otherwise the membership was appropriate.
Action: Scottish Government to invite STEP Scotland to nominate a representative to join the SCIOs Working Group.
Introduction and context (paper 1)
5. Points of clarification were made in relation to specific references within Paper 1, namely that:
- The assumption in paragraph 8 that SCIOs would enjoy less onerous accounting requirements than those to which companies were subject would remain to be seen and should thus be tempered;
- in relation to the second bullet of paragraph 12, it should be noted that for tax purposes, charitable status would be defined in terms of the requirements of HMRC;
- the suggestion in the paper that a different approach would be required in Scotland was questioned - why should a separate development process be pursued if we could piggyback on the CIO model already developed for charities in England and Wales.
- It was observed that the imminent CIO consultation represented the culmination of several years of development work undertaken by the Charity Commission, which served to illustrate that the creation of new forms of incorporation were not necessarily straightforward. The example of the Limited Liability Partnership would perhaps caution against rushing implementation, although subsequent take-up of the form had proved its usefulness.
- Uncertainties around the timing of implementation would necessitate some careful management of stakeholder expectation, in that charities should be made aware of when the form would become available. Some indicative dates are shown in the Implementation Timetable (http://www.scotland.gov.uk/Topics/People/15300/charities/law/implementation-timetable), suggesting Regulations could come into force by late 2010. There is also the wider question as to what the form might deliver and a need to manage expectations, particularly around the issue of simplicity.
6. The discussion broadened to consider the underlying policy drivers and demand from the sector in Scotland, which, it was suggested, may differ from that in England and Wales, where the focus appeared to be primarily on larger charities. Identifying the market in Scotland would be a key concern for the Working Group in determining the focus of its work. The Chair indicated that initial work on a research project was being undertaken by the Scottish Government and OSCR to scope the levels of understanding and demand within the sector for the SCIO. Questions were soon to be tested with key informants and it was intended that initial feedback would be presented to the Working Group at next meeting.
7. The Scottish Council for Voluntary Organisations (SCVO) had undertaken some work on this and identified four potential populations to whom the SCIO form would be attractive:
- Larger charities for which the company limited by guarantee model was not ideal.
- Charities moving into public service delivery, competing for and entering into contracts.
- Unincorporated organisations seeking the protection of limited liability.
- Groups/organisations that haven't yet constituted, i.e. future charities.
Size and scale might be relevant here - in that unincorporated association might continue to be the most appropriate form for the smallest charities, whilst company status might remain desirable for the larger charities with trading or service delivery arms. But data suggested size and scale were not determinants of form for existing charities, and this should be investigated further. It was also noted that those charities embarking on partnership working or seeking to merge might opt for the SCIO form.
8. This raised the issue of engagement and buy-in from potential commercial partners, such as businesses and banks, who would need to have sufficient confidence that the form was viable and would provide the necessary safeguards. The Chair expected that colleagues from areas of enterprise policy and drafting solicitors would become involved in the implementation process at a later stage, once a way forward had been identified, but the Group agreed to consider inviting representatives from the Office of the Third Sector, Companies House and insolvency practitioners, as well as other potential third parties (e.g. the Lloyds TSB Foundation) as expert witnesses to speak on specific subjects at future meetings.
Action: Working Group to consider potential expert witnesses to invite to speak at future meetings.
9. In terms of those charities to whom the SCIO would not be an option, in addition to cross-border charities, there would be those on the Register without a registered office in Scotland. Further to the data already provided (which would be circulated electronically following the meeting), OSCR agreed to see if it was possible to provide data on the numbers of such charities. Specifically, OSCR would try to isolate figures for the following:
·Charities on the Register without an address in Scotland;
·Charities that did not provide benefit in Scotland;
·Profiles of charities, newly entered on the Register, particularly detailing their legal (constitutional) form and purposes; and
·The number of start-ups and wind-ups.
Action: OSCR to determine whether the data specified above can be collated and provided to the Working Group.
New Legal Forms for Charities - Stuart Cross (Papers 3 and 4)
10. The Chair thanked Mr Cross for kindly agreeing to share with the Group two detailed papers on SCIOs, which had been prepared for publication in academic journals, and invited him to speak to the papers, namely, " New Legal Forms for Charities in the United Kingdom" (paper 3) and "Governance Through Form: The Role of New Legal Forms in the Governance of Charities in the United Kingdom" (paper 4).
11. Mr Cross began by outlining what had driven the papers, namely exploring how the SCIO might deliver the policy objective of providing a legal form with limited liability and separate legal personality that was not inherently inappropriate for charities. In summarising the main themes of the papers he highlighted two categories of issues: the doctrinal issues relating to the theory and legal scaffolding for SCIOs, and the practical issues to be addressed in implementation.
12. Under the category of doctrinal issues, there was a further subset of two sets of characteristics which any legal framework for SCIOs would need to address, the essential and desirable characteristics (the group would need to consider what these were, although in the course of development, issues initially identified as desirable may well come to be considered as essential):
·Essential characteristics, including:
oLimited liability
oSeparate Legal Personality
oSingle Registration
oCredibility with Third Parties, in particular potential creditors
·Desirable characteristics, including:
oGood governance built into the design/legal framework
oSimplicity
oConvenience, in particular around the conversion process
These raised a number of questions, including how far one might want to look behind the legal personality of the SCIO to trustees and/or members; the appropriate degree of members' rights and issues, for example, around the removal of trustees; and how far the SCIO be designed as a brand new, purpose-built entity as opposed to a hybrid, taking the best from charity and company law?
13. Examples of the " practical issues" might include:
·Can a single form of SCIOs deliver the ideal form of incorporation as a "one-size-fits-all" or should there be subsets to cater for the variety or organisational forms in the sector?
·Should we be mindful of the consequences of an overly purist approach to avoid excessive complexity?
·Where will the law sit? How much administrative detail should be specified in secondary legislation and how much should be left to best practice guidance set out in the form of discretionary model constitutions?
·What level of in-house expertise will be required of OSCR in order to provide the guidance and support required?
·How far do the simplifications introduced by the Companies Act 2006 reduce the burden of the company form, and thus alter the relative attractiveness of SCIOs to particular kinds of charity?
14. The Working Group was grateful to Mr Cross for sharing his papers, which provided an excellent overview of the technical questions that would need to be addressed. They raised a number of questions and observations which the Group would consider over the course of its work, including:
- It should be relatively easy to ensure the SCIO met the "essential requirements" by mapping any developing model against the Companies Act 2006,
- Should we consider as a possible model for the "SCIO Lite", the private limited company model, with OSCR acting as the Registrar of Companies?
- The SCIO will have to cater for the entire life of a charity so it will need to ensure that the procedures for wind-up are not overlooked.
- The potential difficulties around transition from one legal form to another would also need to be considered.
Discussion of future programme of work, agreement of meeting dates and agenda items (paper 5)
15. It was suggested that the future work areas should be mapped out once the Group had been given sight of the Office of the Third Sector's consultation on its proposed Charitable Incorporated Organisations (CIO) Regulations, publication of which was expected imminently. Once published, a mapping exercise could be undertaken to plot the proposals against agreed essential and desirable characteristics, as well as in comparison with existing criteria set in company law.
Action: Scottish Government to:
·provide link to CIO consultation, once published;
·prepare a paper offering some initial analysis of the CIO consultation and scoping the draft CIO provisions against characteristics identified as essential and desirable for the SCIO and against company law requirements;
·provide claim forms for travelling expenses;
·provide table of possible dates for the next meeting.
Any other business
16. Other venues for future meetings were proposed, including the offices of Turcan Connell, OSCR and SCVO. The Chair thanked members for offering venues and suggested that these be considered for future meetings. He also thanked members for the very useful discussion.
Summary of action points
Scottish Government to:
- develop webpages through which Working Group papers could be accessible.
- invite STEP Scotland to nominate a representative to join the SCIOs Working Group.
·provide link to CIO consultation, once published;
·prepare a paper offering some initial analysis of the CIO consultation and scoping the draft CIO provisions against characteristics identified as essential and desirable for the SCIO and against company law requirements;
·provide claim forms for travelling expenses;
·provide table of possible dates for the next meeting.
Working Group to consider potential expert witnesses to invite to speak at future meetings.
OSCR to determine whether the data specified above can be collated and provided to the Working Group.