SCOTTISH CHARITABLE INCORPORATED ORGANISATIONS (SCIOS) WORKING GROUP - MEETING 5 - Monday 9 March, Office of the Scottish Charity Regulator (OSCR), Dundee
Present:
Ken Butler, Scottish Drugs Forum
Stuart Cross, University of Dundee
Richard Dennis (Chair), Scottish Government
Marieke Dwarshuis, Office of the Scottish Charity Regulator (OSCR)
Nancy Fancott, Scottish Council of Voluntary Organisations
Quentin Fisher, Office of the Scottish Charity Regulator
Patrick Ford, University of Dundee
Ben Harrison (guest speaker) Office of the Third Sector, UK Government
Steve Kent, Edinburgh Voluntary Organisations Council
Alex McDougall, ICAS
Gavin McEwan, Law Society of Scotland
Stuart Morrison, Scottish Government
Stephen Phillips, Law Society of Scotland
Anita Popplestone, Scottish Government
Item 1 - Welcome and apologies
1. The Chair thanked OSCR for arranging lunch and hosting the meeting. Apologies were noted from Susan Deighan and Adrienne Airlie.
Item 2 - Minutes of 4th meeting
2. The minutes of the fourth meeting, which took place on Thursday 29th January 2009 in the offices of Burness, Glasgow were approved.
3. Action point 1 from the previous meeting was being taken forward by the Charity Law team in conjunction with solicitors. If international comparators were identified, details of these would be circulated in correspondence to members. The second action point had been completed and discussion of the questions that had emerged thus far would take place later in the meeting.
Item 3 - CIOs Consultation - Next steps in the process - Ben Harrison, Office of the Third Sector
4. The Chair thanked Ben Harrison, Policy Manager in the UK Government's Office of the Third Sector, for agreeing to share his reflections on the development of the Charitable Incorporated Organisation (CIO) with the Working Group. After briefly outlining the consultation process, which had involved four consultation events and resulted in over 100 responses, the presentation outlined the key themes for the future direction of the CIO's development. These were still very much undergoing refinement and would be subject to the final decision of Ministers, so the detailed issues remained confidential at this stage.
5. In the discussion that followed, issues of shared concern were discussed and interesting parallels between the thinking on the CIO and the SCIO were noted. In particular it was observed that:
- This new form of incorporation for charities would be unlikely to suit every organisation:
- For large bodies, the company model might continue to provide the best vehicle, especially for those with international operations, given the wide acceptance of the form overseas.
- Similarly, the CIO/SCIO would not necessarily be suitable for the very smallest charities, with minimal exposure to risk, for which incorporation would offer limited benefits.
- However, it was also recognised that what was understood by "small" and "large" charities in England and Wales may differ considerably from Scotland, where over 40% of charities had annual incomes under £5,000.
- The impact on the Regulators, particularly of any additional disclosure requirements, was still to be ascertained but would need to be considered when developing provisions.
- Links and shared processes between Regulators, particularly with Companies House and the Charity Commission/OSCR, would need to be developed.
- Ease of administration for those setting up or converting to CIO/SCIO form would undoubtedly enhance their appeal but would nonetheless need to be set in a robust regulatory framework.
- Proportionality and pragmatism would need to be balanced with retaining appropriate safeguards and sanctions when considering offence provisions.
- Concerns about the potential crystallisation of pensions liabilities for unincorporated charities with defined benefits pensions schemes would be a factor for those considering the CIO/SCIO but this was also true for those considering any form of incorporation.
- The benefits of utilising existing insolvency rules were evident for both.
- Consideration should be given to the extent to which funders and lenders might impose their own requirements, above and beyond those set out in statute for the CIO/SCIO. Further exploration of this issue with funders and lenders could help to test the validity of this concern.
- Sector-specific models and guidance could be developed in discussion between the Regulators and umbrella or parent organisations.
- The SCIO/CIO had the potential to become a developmental tool for charities wishing to expand their activities within their communities and improve their organisational and governance arrangements.
6. The Chair and members thanked Ben Harrison for his presentation and for travelling up to meet with them. The Chair asked that any further questions for the Office of the Third Sector be passed to the Charity Law Team to collate and send.
Action: Members to pass any further questions for the Office of the Third Sector to the Charity Law Team to collate and send.
Item 4 - Questions from the SCIO Focus Group and CIO Consultation (Paper 2)
7. The Chair invited Stuart Morrison to open the discussion on consultation questions with a presentation. By returning to the definition of a SCIO in the Explanatory memorandum to the 2005 Act and to the Working Group's remit, the presentation focussed on the original policy intention, which was to create a form of incorporation, specifically for charities that would be cost-effective, straightforward and tailored to the needs of charities. Drawing on the key themes identified by charities in the earlier focus groups, the question posed was "what do we need to regulate on?".
8. The discussion turned to focus on the consultation and in particular on whether it was more important to:
· maintain similarity with the CIO for England and Wales to minimise any differences for cross-border comparisons, maximise clarity for third parties and thereby allow greater read across between the regimes; or
· prioritise simplicity and ease of use for charities in Scotland, which would suit the sectoral landscape in Scotland and could maximise take-up, thereby increasing access to the benefits of limited liability and potentially raising governance standards in the process?
These two approaches were dubbed "SCIO max" and "SCIO lite". It was also suggested that could be third, hitherto overlooked, option, which sat between the two extremes. While not as extensive in detail as the CIO or as close to the company model, it need not be as minimalist as the approach taken in the SLC Discussion Paper on Unincorporated Associations but could strike a balance, seeking to engender best practice through the creation of a robust, well-developed model.
9. Following this proposal, it was agreed that the consultation could present three models, offering examples and alternatives to better provoke responses. It could also set out some of the advantages and disadvantages for different parties, be they small charities or major funders. The question as to which model might encourage take-up could be raised. Indeed, the majority of questions raised thus far could then be framed within the comparison of the three distinct approaches.
10. Drafting of the consultation would need to be informed by an understanding of the different audiences and their levels of expectation and understanding. Different readers would have different understandings of certain terms, such as "members", or "registers" depending on whether they were more familiar with company models or membership associations. Clarity around terminology, as well as the accessibility of the consultation document would increase response rates. Consultation events would add further depth to the quality and engagement with specific issues.
11. The Chair proposed and it was agreed that the next meeting would take place after a longer interval, during which an initial version of the consultation would be drafted by Anita Popplestone, although Working Group members were more than welcome to contribute or make suggestions in correspondence.
Action: AP to draft consultation document.
Item 5 - Feedback from meeting with Accountant in Bankruptcy
12. The Charity Law Team provided some brief feedback from a meeting with policy colleagues from the Accountant in Bankruptcy (AiB), which had taken place in Kilwinning on 23 February. Although corporate insolvency was a reserved matter, the AiB did have a role in registering corporate insolvencies and liaising with Whitehall colleagues on policy. They confirmed that the rules on corporate insolvency in Scotland were simpler than those for England and Wales and that could prove beneficial. Regulatory developments were in the pipeline so any further reformulating of the rules would need to be taken into account if they were used in the regime for SCIOs.
13. The Chair asked the Group if there was any objection to using the existing rules and what would happen if arrangements for the insolvency of a SCIO were left to fall back on the default option. The Group did not have any strong objection, subject to there being sufficient sanction against wrongful trading. The Charity Law Team undertook to continue discussions with AiB, given their expertise in this area, with a view to exploring the best means of bringing the existing rules to bear in the insolvency of SCIOs.
Action: Charity Law Team to discuss corporate insolvency issues further with AiB.
Item 6 - Any other business
14. It was agreed that the Working Group would meet again after a period of ten or so weeks.
Action: Charity Law Team to circulate later dates for next meeting.
Summary of action points
Action 1: Members to pass any further questions for the Office of the Third Sector to the Charity Law Team to collate and send.
Action 2: AP to draft consultation document.
Action 3: Charity Law Team to discuss corporate insolvency issues further with AiB.
Action 4: Charity Law Team to circulate later dates for next meeting.