Scottish Charitable Incorporated Organisations
4th Working Group Meeting
29 January 2009; 1400-1600; Burness
In attendance:
Richard Dennis, Scottish Government (Chair)
Anita Popplestone }
Stuart Morrison } Scottish Government (Secretariat)
Nancy Fancott, SCVO
Colin Tyre QC, Scottish Law Commission (Items 1-4 only)
Ken Butler, Scottish Drugs Forum
Stephen Phillips, Law Society of Scotland (Burness)
Steve Kent, EVOC
Quentin Fisher, OSCR
Adrienne Airlie, Institute of Chartered Accountants Scotland (Martin Aitken & Co)
Susan Deighan, Glasgow City Council
Stuart Divers, Citizens Advice Scotland
Richard Whitecross, Scottish Government (Items 1-3 only)
Stuart Cross, Dundee University
Marieke Dwarshuis, OSCR
Item 1 - Welcome and apologies1. The chair thanks Stephen Phillips and Burness for hosting the meeting. Apologies were noted from Gavin McEwan, Patrick Ford, Alex McDougall and David Brownlee (represented by Stuart Divers).
Item 2 - Minutes of 3rd meeting
2. The minutes of the 3rd meeting, held at SCVO on 15 December 2008, were approved.3. It was agreed that the Scottish Government would take forward action 4. The scope of action 6 was extended to include other relevant regulations from the draft CIO consultation. This was being taken forward by Quentin Fisher.
Action: SG to look for international models for addressing members rights and power in third sector/charitable organisations.
Item 3 - SCIO research project - Overview of the three focus groups
4. The chair invited Dr Richard Whitecross to speak on the findings of the three focus groups which were held. Dr Whitecross highlighted the differences in tone of the 3 focus groups - the first (professionals) had a negative tone; the second (mid-sized charities) was positive, although there was a general lack of understanding of the SCIO; while the third (charity finance officials, mostly drawn from parent charities with many small branches) was characterised by high expectations. Comparisons were drawn with the CIO consultation in England and Wales, with some calling for the two regimes to be assimilated, although few participants had read the consultation and some were unaware of it. Costs were a key factor for smaller charities, with calls for easily accessible off-the-shelf constitutions. In contrast some participants argued that model constitutions would not encourage trustees to take ownership of the charity's founding document and there was concern amongst the professionals that charities might not then benefit from expert advice. Questions were also raised as to whether the SCIO would live up to the aspirations of a simple form of incorporation. Some of those attending had expected more of an information briefing and were unclear as to what the SCIO would deliver. With details still to be determined around key processes, such as conversion, the need for a communications strategy was evident.
Item 4 - Scottish Law Commission (SLC) Discussion Paper - Unincorporated Associations
5. The chair invited Colin Tyre QC to speak on the work the SLC is currently undertaking on unincorporated associations. In opening his presentation, Mr Tyre noted that this work was wider than the charity sector, and that it was a matter reserved to the UK Government. Mr Tyre advised that the project would be finished this year, at which point a report would be submitted to the Scottish Government. The final report would include a draft Bill. Implementation of the proposed legislation would be a matter for the UK Government.6. The presentation set out the key issues, highlighting the obstacles experienced by unincorporated associations under current law and outlining possible solutions. Discussion following on covered a wide variety of issues. The clear parallels between the SLC's project and the development of the SCIO were observed. Overcoming the difficulties flowing from the lack of legal personality and the exposure to personal liability were common objectives, albeit that the SCIO would only provide a potential solution to charities and not non-charitable unincorporated associations. Although there were shared themes, there need be no conflict between the two projects; rather they should be viewed as complementary alternative models for the non-profit sector, potentially serving different constituencies. Reception to the discussion paper within the third sector had been very positive. The business sector had been more cautious in responding to the proposals, conscious of potential risks.7. It was noted that there were no registration requirements contained within the proposals. This raised the question as to how it would be possible to achieve transparency for funders and lenders without a register. The reason for its absence flowed from a very strong desire amongst unincorporated associations to avoid the need for a new regulator or scrutiny body to maintain a register. For those unincorporated organisations with charitable status, the introduction of a new register would lead to dual registration requirements. However, this may raise the possibility of organisations using the scheme to evade debts. For its part, the SLC did not want the design of options to be driven by fear of misuse, or clogged with protections against potential fraud, the risk of which was comparatively small. This approach would also need to be balanced against the fact that a non-registration scheme would not enable organisations to receive a 3rd party seal of approval (similar to a 'Certificate of Good Standing' from Companies House). The issue of registering floating charges was raised. However, it was felt that if an organisation was big enough to grant a floating charge, incorporation as a company would be appropriate. In terms of insolvency, unincorporated associations could be sequestrated under bankruptcy legislation, so there was no need for additional legislation to deal with this or tracing property.8. The discussion returned to a question that had been raised at the first Working Group meeting; namely, would a SCIO modelled on the form proposed for the CIO, which itself closely followed the Company Limited by Guarantee, really deliver the original policy intention. Would it in fact be closer to that original intention to follow the thinking outlined in the SLC's Discussion Paper? In this respect, it was queried whether registration with OSCR should be enough to secure legal personality? This suggestion had been mooted during the development of the 2005 Act but was not taken forward. It might be possible to consider a slightly enhanced form of registration with OSCR as sufficient to qualify for SCIO status, effectively adopting the SLC's proposals for SCIO's. However, there might still be demand for a separate SCIO form that went beyond simple attribution of legal personality and questions around the application of these proposals to trusts. Would the SCIO provisions within the 2005 Act allow for this or would such an approach require additional or amended primary legislation? If the Working Group concluded that it was not possible to deliver the original policy intention for SCIOs under the existing primary legislation, would it then recommend a revision to the 2005 Act to allow for this? There was no clear consensus on whether this was the route that the Working Group should pursue but it was agreed that further consideration should be given to these more fundamental questions.
9. The Chair thanked Colin Tyre for his presentation and it was agreed that close links would be maintained between the two projects, to share information and provide progress updates.
Item 5 - Feedback from correspondence with funders and business
10. The chair invited Anita Popplestone to provide feedback on responses received from 3rd parties to the chair's letter. The main theme from the letters was that any new legal form of charity would be unlikely to present any problem for funders etc. It was acknowledged that 3rd parties currently engage confidently with charities, whatever their form. In that respect, calls for maximum protection of creditors along the lines of the company model should be reconciled with the practical reality that many banks and businesses confidently transact on a daily basis with organisations that lack such protections. There appeared to be a lack of awareness amongst funders of the different forms that charities could take. This pointed to a mismatch in perception between those who might fund charities and those who might have to deal with the technical legal and financial difficulties encountered by charities, such as lawyers and accountants.11. Discussion following on from this queried which charities were being targeted by the SCIO, and whether those that were likely to be adopting the SCIO form would be entering into contracts with business. There was also discussion on what OSCR's role would be - acknowledging that OSCR would regulate substance and form. Some respondents suggested that OSCR should fulfil the same roles as Companies House currently does. Another response suggested that OSCR should be able to provide support and/or advice, although this would require an extension to its current remit. Standardised constitutional form for SCIOs would lessen the administrative burden on the Regulator. However, questions around the end of a SCIO's life, which had been raised in the correspondence and discussed in previous meetings, remained to be answered.
Item 6 - Discussion of future programme of work and agenda items - Key questions and direction for consultation/recommendations to Ministers
12. The Group returned to questions raised in earlier discussions as to whether the current legislative framework, as prescribed in the 2005 Act could provide a legal form for charities that met the original policy objective of simplified, sector-specific incorporation. The SLC presentation brought this issue to the fore again and it was agreed to reconsider the scope for a pared down SCIO model at the next meeting.13. The next meeting would be held on Monday 9 March at OSCR's offices in Dundee. A representative from the Office of the Third Sector would attend the meeting to outline how they would be taking forward their work on CIO's following the consultation. The second half of the meeting would concentrate on identifying questions for the SCIOs Working Group Report and Consultation. This would be followed by an interval during which drafting of the Report and Consultation would be undertaken by officials.
Action: AP to circulate questions raised in the CIO consultation document and in the SCIO focus groups to provide initial thoughts for the Working Group's Report and consultation document.
Item 7 - Any other business
14. There being no other business, the chair thanked everyone for their attendance and closed the meeting.
Summary of action points
Action 1: SG to look for international models for addressing members rights and power in third sector/charitable organisations.
Action 2: AP to circulate questions raised in the CIO consultation document and in the SCIO focus groups to provide initial thoughts for the Working Group's Report and consultation document.