Charity Commission issues guidance on its new powers
19 December 2016
The Charity Commission has published guidance and further information on its new ‘Official Warning power’ and its new ‘Discretionary Disqualification power’. Both of the new powers were introduced under the Charities (Protection and Social Investment) Act 2016.
The Charity Commission has published guidance and further information on its new ‘Official Warning power’ and its new ‘Discretionary Disqualification power’. Both of the new powers were introduced under the Charities (Protection and Social Investment) Act 2016.
The Official Warning power, as the name suggests, enables the Charity Commission to issue official warnings to charities or their trustees if there has been a breach of trust or duty, or other misconduct or mismanagement. This new power came into force on 1 November 2016. The Discretionary Disqualification power then takes things a step further, as it gives the Charity Commission the power to disqualify a person from acting as a charity trustee or holding a senior management position in a charity. This new power came into force on 1 October 2016. Both new powers follow a period of consultation which has now closed and the Commission has now published more information about how it proposes to use its new powers.
There are considerable concerns within the sector about the breadth of the Commission’s new powers, in particular in relation to the Discretionary Disqualification power, as the legislation is drafted very broadly. It states that the Commission may only make a disqualification order if it is satisfied that the Conditions Test (see below), the Fitness Test (i.e. the person is unfit to be a charity trustee) and the Public Interest Test (i.e. the order is desirable in the public interest so as to protect public trust and confidence in charities) are all met. However, the way in which the Conditions Test is drafted has raised concerns that there are very few circumstances in which the Commission would not have the power to disqualify, including in relation to innocent mistakes.
To satisfy the Conditions Test, at least one of six conditions must apply. The first two conditions are being cautioned in this country or convicted abroad of an offence which would (if convicted in the UK) result in automatic disqualification. The third condition is being found by HMRC not to be a “fit and proper person” (more information about the fit and proper person test can be found online). These are all useful, clear and narrowly defined conditions. However, the fourth, fifth and sixth conditions are, in contrast, very broadly drafted: involvement in misconduct or mismanagement of a charity (as a trustee or as an officer or employee of a corporate trustee), or having engaged in any other past or continuing conduct, whether or not in relation to a charity, that is, or is likely to be, damaging to public trust and confidence in a charity or charities.
Many within the sector, including the Charity Law Association have raised concerns that the three stage test is insufficiently defined and lacks clarity and adequate safeguards. The conditions are so broadly drafted that there are very few circumstances in which the Conditions Test would not be met. The Fitness Test lacks objective criteria and has been defined by the Commission in the widest possible terms. There is also a lack of clarity as to what will be involved in assessing whether the Public Interest Test is met. The concerned were elevated by reports in the press about how the Commission might choose to exercise its news power.
In its Q&A document on the new Discretionary Disqualification power, the Commission has stated that it will only use its power “in cases where it is satisfied on the facts that there are sufficiently serious and substantial grounds that make it necessary or desirable to act”. The Commission has also included ‘safeguards’, including that a person must be given at least one month’s notice of the Commission’s intention to make a disqualification order and be invited to make representations, and that whenever an order is made it must be accompanied by a statement of reasons. There is also a right to appeal against any disqualification order, and the Commission may itself choose to discharge an order after it has been made. However, concerns about the breadth of the power have not been assuaged by the Commission, which has stated in its Explanatory Statement on the Discretionary Disqualification power that it “has no power to define or expand” on the statutory criteria as set out in the legislation, and “nor can the Commission fetter its discretion as a public authority by confirming categorically in what circumstances and when it will or will not use the power”. The Commission intends to use the ‘ordinary meaning’ of the language in the legislation, “applied on a case by case basis”. Although the guidance includes some examples of the type of circumstances in which the Commission is likely to act, and provides some reassurance that “it is not the Commission’s intention to make a finding of unfitness in relation to well-meaning persons who have made an honest mistake in good faith or who were well-meaning in what they did but made an error in judgment” it remains to be seen how and in what circumstances the Commission will in practice use its new disqualification power.
The content of this article is for general information only. If you are a charity trustee and are at all concerned about any governance arrangements or possible mismanagement within your charity, please get in touch with Liz Brownsell or another member of our Charities Team.
We also offer regular Charity Trustee Induction and Refresher training, which provides charity trustees with essential legal training to enable them to comply with law and best practice in fulfilling their duties and furthering the success of the charity.
Sectors
The content of this article is for general information only. It is not, and should not be taken as, legal advice. If you require any further information in relation to this article please contact the author in the first instance. Law covered as at December 2016.