Charities, third & impact sector

Telephones and charity fundraising on Radio Scotland’s Kaye Adams Programme

Last Thursday I joined the Kaye Adams Programme on Radio Scotland to discuss charity donations. The segment came on the back of research showing a 159% increase in cold calling during the pandemic. There were concerns and anecdotal evidence (reported in the Times) that some of this increase related to charities seeking donations over the telephone and risks of this affecting older and vulnerable individuals.

The research does not appear to provide actual numbers identifying the extent to which charities have been engaging in such practices. Whatever the extent of this, the Kaye Adams Programme gave an opportunity to hear from those in the sector about the matter, to give an overview of the regulatory background and also to highlight that charities seek to positively build long term relationships with donors rather than one-off cold calling.

The discussion began with Daniel Fluskey of the Chartered Institute of Fundraising noting he would need to see further detail on the research as he would be surprised if charities were engaging in cold calling as it was not normal practice. Daniel highlighted that such behaviour would be contrary to rules and standards in fundraising. He was also unaware of increases in complaints to regulators in this regard, which would be indicative of issues. Daniel was clear any such targeting had no place in fundraising and encouraged those with concerns to contact regulators.

Kaye appreciated the pressures on the charity sector recently and the need to reposition fundraising efforts. With that, Corinne Hutton of charity, Finding Your Feet talked of the initial concerns about the impact of the pandemic on fundraising for the charity but said it never once crossed her mind to use cold calling.

Corinne said the key is to build a relationship with the public and donors. For her, creating pressure and guilt could never be part of fundraising. Instead, it was about showing the good things a charity was doing as the basis to encourage support. Following on from Kaye mentioning that charities have had to reposition fundraising in recent times, Corinne discussed the creativity that has been required recently to engage with supporters under the current restrictions, including through fundraising walks and step challenges. But definitely not cold calling! That creativity, the generosity of the supporters and hard work of two team members working on grant applications at Finding Your Feet had helped navigate the last year. Later on in the programme, Corinne said it was about showcasing what a charity does well and gave the example of Children in Need doing this very effectively.

Then it was my turn to join the programme. I started by saying fundraising is part of the overall good governance of a charity. A good governance approach to fundraising being one that builds the longer term relationship with donors. Charities will want to create effective fundraising strategies and not short fixes like cold calling, which good governance would lead a charity to shy away from. I talked about that long term relationship building being epitomised in the strength and importance of legacy giving through wills.

Kaye said there was a concerned text to the programme about correspondence found by a relative from a charity about increasing donations. I gave examples of charities proactively identifying and dealing with issues on potentially vulnerable individuals. And dealing with these situations in order to generally protect the individual such as engaging with family. I also offered a reminder of routes to raise concerns in Scotland: contact the charity; the role of the Scottish Fundraising Standards Panel and OSCR.

A difficult ‘juncture’ was raised by Kaye where charity communications and updates meet placing some degree of pressure on individuals. Even where the communications were well-intentioned. In my view that brought us back to good governance and ensuring teams within charities and those helping charities with communications and marketing understood what was appropriate and acceptable. And with that good governance is the focus on trustee responsibility… trustees need to ensure fundraising practices are appropriate, including where anything is outsourced.

Adam Stachura of Age Scotland concluded things. He made the point that people are generally polite and do not want to hang up on those calling them. Adam reminded listeners that they can say ‘no’ to anyone calling them about any matter and that they can opt out of being called. On that last point, Adam also referenced the role of the Telephone Preference Service, call blocking devices and Trading Standards. All of this would help ensure people were making decisions, including supporting charities, when they had the information and time they needed to make a good decision.

At this blog, we are fans on telephone based songs. Who doesn’t like ELO? But it seems from those joining Kaye that the charity sector has been listening to Telephone by Lady Gaga (featuring Beyonce): “… eh, eh stop telephonin’ me” already appear to be watchwords on effective and appropriate fundraising.

The playback of the discussion can be found here on BBC Sounds… at 2:33:20.

For help and advice on charity law as well as maters such as powers of attorney and other legal support for vulnerable individuals, get in touch with Alan Eccles: / 07470808717.

He is an experienced lawyer who is very well known among sources for advising clients on charity law matters.” Chambers High Net Worth 2020

Alan is “highly experienced in advising third sector organisations” … “efficient and has a very in-depth knowledge of the Scottish charity scene” Chambers & Partners 2020

Alan Eccles is “one of the leaders in private client expertise in Scotland.” Chambers High Net Worth 2019 directory

Charities, third & impact sector

Trading, charitable status, ice-cream and hotels: context matters

This update considers a recent decision of the Court of Session on the application of the Scottish charity test in the context of New Lanark. A case that might be seen to make no change to Scottish charity law while at the same time being significant in focussing attention on the Scottish charity test. A likely reason for charitable status being desired in he New Lanark situation is also worth considering… the matter of Scottish non-domestic rates.

New Lanark is a famous UNESCO World Heritage site. New Lanark Trust (“NLT”) manages the site. There is also New Lanark Trading Limited (“NL Trading”) which runs activities including visitor attraction, hydro scheme, retail shop, café, and ice cream production. As well as NLT, there is New Lanark Hotels Limited (“NLH”) which, as the name suggest, operates a hotel and other accommodation as well as conference centre, bar and restaurant, wedding venue, beauty treatments and spa. NL Trading and NLH are wholly owned subsidiaries of NLT.

NLT is a registered Scottish charity. It has been recognised as a charity for some time. For those that know and have visited New Lanark that would seem wholly uncontroversial. NLT is the guardian of an important heritage site. NLT’s charitable purposes are stated (per the online Scottish Charity Register) to include:  “(a) the restoration, maintenance and management of those buildings and others in and around New Lanark… (b) securing so far as possible that buildings restored by the Trust shall be occupied and/or put to use with the aim of bringing about the complete revitalisation of the village of New Lanark; (c) stimulating public interest both national and international in the village of New Lanark and its surroundings by means of exhibitions, lectures, the publishing of books and pamphlets supporting research work and by the provision of facilities for visitors in and/or near the village… .” (my emphasises)

NL Trading and NLH apply for charitable status

NL Trading and NLH each separately applied for charitable status from OSCR. OSCR refused to grant charitable status to both. This was on the ground that NL Trading and NLH did not provide public benefit within the terms of the Charities and Trustee Investment (Scotland) Act 2005. A failure to provide public benefit means a body fails the Scottish charity test.

OSCR accepted that some of the activities of these bodies advanced charitable purposes and provided public benefit, but considered that some did not. Those that did not were not incidental, which would have been permissible. OSCR also said that there is a distinction between advancing charitable purposes and undertaking activities which happen to generate funds to be applied for charitable purposes. OSCR concluded that there was no public benefit arising from the activities of these bodies as a whole.

NL Trading and NLH applied to the First-tier Tribunal to challenge the OSCR decisions. The First-tier Tribunal agreed with OSCR.

Undeterred, NL Trading and NLH appealed to the Upper Tribunal. This was on the basis that the First-tier Tribunal had “failed to provide proper, adequate and intelligible reasons” for its decision. This time, the Upper Tribunal sided with NL Trading and NLH. As the Upper Tribunal was making a decision of new, it decided that NL Trading and NLH should be entered into the Scottish Charity Register.

OSCR then appealed to the Inner House of the Court of Session. It has now reached its decision. It has rejected OSCR’s appeal and upheld the Upper Tribunal’s conclusion that NL Trading and NLH should be granted charitable status.

The Court of Session decision

The Court of Session was considering the Upper Tribunal’s decision and whether it not it had erred in law. It was not revisiting the factual conclusions it reached.

In rehearsing the history of the case, the Court of Session noted that the Upper Tribunal concluded (and agreed by OSCR and NL Trading and NLH) a body could not pass the charity test on the basis simply that it would donate any surplus to a charity to apply it for chartable purposes. It was necessary that the activities (which in this case happened to be commercial in nature – charities can be ‘commercial’) of NL Trading and NLH were themselves providing public benefit in terms of the 2005 Act. And in looking at those activities, it should be done as a whole.

OSCR’s position before the Upper Tribunal was that commercial activities could be acceptable for charitable status where (1) they directly furthered a charitable purpose or (2) they were incidental. The court referred to the Upper Tribunal conclusion that this view “missed the point of the argument” from NL Trading and NLH: “that in the overall setting of New Lanark the commercial activity in itself amounted to a public benefit.” If an activity furthered charitable purposes and provided public benefit, it did not matter that the funds raised might be donated to another charity. It would then not be appropriate or necessary to carry out a balancing exercise to determine which of the two aims (raise funds for another charity or furthering the body’s own charitable purposes) was the more important. OSCR and NL Trading and NLH did accept that a “minor or trivial contribution to the charitable purposes” would be insufficient for charitable status.

The Court of Session decision highlighted a part of the Upper Tribunal’s findings: “It is a crucial feature of the New Lanark site that it is not merely preserved, but maintained as a living village so that visitors may, so far as practicable, experience the original concept… At New Lanark the availability of commercial facilities to visitors is, on the evidence, an integral part of the presentation, contributing to the experience which has given the site its reputation and thereby providing pubic benefit.

Accordingly, the commercial activities furthered an appreciation and understanding of the original aims of New Lanark’s founders, David Dale and Richard Arkwright and then Robert Owen to create a living and viable community at New Lanark. The activities of NL Trading and NLH were to be classified as “primary purpose trading” as they directly contributed to the body achieving its charitable purposes… a revitalised, viable New Lanark. The Upper Tribunal was entitled to reach that factual conclusion.

The role of OSCR guidance was discussed in the case. OSCR has obligations to issue guidance. It has published guidance on “Meeting the Charity Test.” It was decided that OSCR guidance is not determinative of the legal interpretation of the 2005 Act. It was noted that the Upper Tribunal decision was made in accordance with the guidance. The Upper Tribunal considered that the commercial activities were an example of primary purpose trading. Reaching a conclusion that hotel accommodation and spa/beauty treatment facilities were also activities designed to further charitable purposes and provide public benefit so as to “enhance the presentation of New Lanark as a living village” and allowed “visitors to immerse themselves more fully” and show the buildings “being occupied in a useful way which contributed to maintaining the village’s life and economy.” Ice cream production was noted as also “contribut[ing] to the presentation of the village as a functioning entity.” It is understood that ice cream production had previously be carried out through a standalone company before being transferred to NL Trading.

Context was everything here. One might have arrived at a different outcome if each activity was looked at in isolation. But that would not be right approach. The court also ended by saying “Another tribunal might have reached a different decision, but standing the evidence and the acceptance of the uniqueness of the village, and the aim of presenting it as a living, working community, the Upper Tribunal was entitled to make the findings which it did.

Why this case matters and what next

OSCR status and rates relief

Charitable status matters. It has various financial and ‘softer’, yet valuable benefits. Often, the tax benefits of charitable status are highlighted. Charities can receive donations with the benefit of Gift Aid. Charities can have a primary purpose trade and not pay corporation tax on that trade. That latter one is less relevant for New Lanark as profits of NL Trading and NLH would be donated to NLT and the corporation tax should be ‘washed out’ by doing that.

Gift Aid and corporation tax is an HMRC recognised benefit. OSCR charitable status is not sufficient. Indeed, it is possible (although very, very unusual to obtain the benefits without OSCR registration) However, for non-domestic rates relief, OSCR granting charitable status is a vital factor. The buildings used by NL Trading and NLH will now be in a position to seek to benefit from charities rates relief and that could be very valuable – perhaps the real prize in a case like this. Indeed the 2019 accounts for NLT notes the negative “impact of the loss of business rates relief [being] felt” on NLH’s financial performance. Unless the charitable status case has any further procedure, the next port of call will be the application of rates relief.

Implications for charitable status

The Court of Session stressed that the Upper Tribunal arrived at its conclusion in accordance with the OSCR guidance on “Meeting the Charity Test”. A decision therefore made on the basis that the activities of NL Trading and NLH furthered charitable purposes and provided public benefit. So, no change to what we all already understood perhaps? The position remains that ‘simply’ generating funds for a charitable purpose is not enough to base charitable status.

The New Lanark situation does however provide another opportunity to consider what is ‘charitable’ under Scots law and how a range of apparently non-charitable activities can further a charitable purpose. While New Lanark might be a unique place, the issue of apparently non-charitable activities being the basis for a charity is really quite common. The grant giving-charity that spends much of its time and costs on the activity of investment fund management could have the same analysis applied. What matters is having only a charitable purpose(s) and providing public benefit. It is then up to ingenuity of the sector to come up with ways and activities to further those purposes and deliver public benefit. Sometimes those activities could look or be ‘commercial’. There is nothing in principle wrong with that. The 2005 Act does not set out a test based on carrying out some form of defined or exhaustive notion of “charitable activities”… and frankly nor should it.

The phrasing of a charity’s constitutionally stated purposes is important: if NLT did not have “revitalisation” in its constitution, would there have been a different outcome? Purposes in articles of association and constitutions often prove to be critical. A 2019 Scottish charity rates relief case was an example of that.

The procedure in this case probably had an impact on what has happened and the wider implications of the decision. The appeal to the Upper Tribunal was focussed. And the Court of Session did note that “another tribunal might have reached a different decision“. It was said that New Lanark village has a “uniqueness“. Quite true in many respects. However, it could be that other charitable projects can point to their own factual situation to support charitable status despite the activities, when looked at in isolation or at ‘first blush’, appearing to be non-charitable. The application of the principles in the New Lanark case might not be unique. But that is, in part, due to the findings in New Lanark being that the activities in question did further charitable purposes and provide pubic benefit… even the making of ice-cream.

For help and advice on charity law, get in touch with Alan Eccles: / 07470808717.

He is an experienced lawyer who is very well known among sources for advising clients on charity law matters.” Chambers High Net Worth 2020

Alan is “highly experienced in advising third sector organisations” … “efficient and has a very in-depth knowledge of the Scottish charity scene” Chambers & Partners 2020

Charities, third & impact sector

The ethical charity constitution: hardwiring ESG

The general population will think that charities will be ‘ethical’ beasts by their very nature. But what is ‘ethical’, how is ‘being’ ethical achieved and what does the law allow or require are sometimes not easy things on which to settle. This is often played out via the issue of ethical investing.

In is simplest form the debate or conundrum has boiled down to does a charity put ‘ethics’ above financial performance? A discussion that has evolved significantly over the years. Having strong ethical, social and governance (ESG) principles can support strong financial performance – it is not an ‘either or’ situation.

There is also a growing societal shift that ESG factors are not ‘extras’… they should be the norm. And these factors filter through to trends and spending habits of modern consumers. In the investment sphere, you know ESG matters when it is incorporated in regulatory rules such as MiFID II as well as the creation of the UN Principles for Responsible Investment.

So, if ESG and ethics (or whatever you want to call it) is becoming ‘standard’ and ‘mainstream’, where might that put its position in charity law. While discussing what the law might be is very interesting, we try here to fast forward that bit to consider one clear way to make this subject easier for charity trustees to navigate.

The law and ‘ethical’ considerations by charities

The usual basepoint for the law in this area is a case called Harries (Bishop of Oxford) v Church Commissioners for England from 1991. It was a case about the extent to which the investment policy of the Church of England had to take into account ethical factors (in this particular situation, the promotion of the Christian faith). The court essentially decided that the role of trustees was to maximise financial return. Similar outcomes were reached in other cases (including in Scotland) about the investment duties of trustees and the ability to take wider factors into account.

In England, the Charity Commission’s guidance on investment matters set out a broad position that trustees of any charity can decide to invest ethically, even if the investment might provide a lower rate of return, where:-

  • a particular investment conflicts with the aims of the charity
  • the charity might lose supporters or beneficiaries if it does not invest ethically
  • there is no significant financial detriment

Again in England, the Charities (Protection and Social Investment) Act 2016 introduced a new statutory power for charities to make ‘social’ investments. A ‘social investment’ being one that is made “with a view to both directly furthering the charity’s purposes and achieving a financial return for the charity.”

Spookily, as we finished typing up this blog, it was actually announced that the Charity Commission will be consulting in the spring on updated guidance on ‘responsible investments’.

There is no statutory equivalent to the 2016 Act in Scotland. OSCR has made available (the very well worth reading) “Charity investments: guidance and good practice“. The general duties of Scottish charity trustees also provide the foundation for investment duties: acting in the interests of the charity; furthering the charity’s purposes; and acting with reasonable care and diligence.

So, it might be fair to state that investments can be made (of whatever nature) should the trustees carefully, and applying the right level of care and diligence, determine the particular investment does indeed further the purposes of the charity. It is ‘purposes-led’ investment, if you wish. And ‘purposes-led’ investment might not be just around ‘ethical’ matters but might also cover charities holding large single (sometimes private, unquoted) company shareholdings. The situation of the charity with the large single company holding also leads into the distinct but legally similar issue of how diversification in investment approach is considered by trustees.

What is permitted under the 2016 Act or within the notion of ‘purposes-led’ investment is perhaps still not as wide taking into account, as a matter of course, ESG and similar factors. What should charity trustees do about that?

Hardwiring ESG into your constitution  

Given ESG and wider issues of sustainability and responsibility are becoming the ‘norm’ for individuals and even businesses thinking about society, capitalism, consumerism, investments and beyond, should it also be hardwired into the thinking of a charity?

Trustees should not be thrusting their individual views upon a charity. It should be the charity’s view on such matters. How does a charity have a view on matters or how does it construct a view?

It does so through its constitution.

A charity’s constitution is perhaps its brain, soul, conscience and heart. By introducing the ability to take into account ESG etc, into the constitution, it hardwires it in to the brain, soul, conscience and heart of the charity. It gives comfort to the trustees that such factors are part of the charity’s thinking.

The ethical constitution

As ethical, sustainable, responsible and ESG is a norm and a growing one, we have taken the step that the constitutions we prepare for charities should have such considerations hardwired.

It creates a constitutional platform to take ‘purposes-led’ decisions and to have proper regard to those wider factors… which maybe are not really ‘wider’ factors at all. Rather, they are factors trustees and all investors (and humans in their day-to-day) are routinely thinking about when deciding on how to hold and use (charity) assets.

For help and advice on charity law, including setting up a charity, constitutional and structure changes as well as investment legal duties and powers, get in touch with Alan Eccles: / 07470808717.

He is an experienced lawyer who is very well known among sources for advising clients on charity law matters.” Chambers High Net Worth 2020

Alan is “highly experienced in advising third sector organisations” … “efficient and has a very in-depth knowledge of the Scottish charity scene” Chambers & Partners 2020

Alan’s published journal work on trustee investment powers and duties has been described in a textbook as “outstanding“.

Charities, third & impact sector

Scottish charity law review back on the road again

The Scottish Government’s Programme for Government for 2020-21 included an update on the review of Scottish charity law. It said: “The legal environment within which Scotland’s 29,000 charities operate is critical to all of our ambitions for the third sector. Delayed by the crisis, we will now re‑start our process of co‑production with the sector to review Charity Law and publish our proposals by the end of this parliament.”

Joining an ACOSVO and SCVO organised event this week really gave me the feeling the the project was back up and running after a natural hiatus this year. There even seemed a benefit in having had some time to refresh your own thinking on the various topics covered in the Scottish Government consultation on the review. It also made me revisit those consultation topics.

Here is a summary of the main issues on the review agenda… and also matters that featured in the ‘free text’ of consultation responses that respondents thought merited (further) exploration.

The consultation topics

The matters that were consulted upon covered the following:

  • publication of annual reports and accounts in full and unredacted for all charities on the Scottish Charity Register.
  • an internal database and external register of charity trustees to enable OSCR to hold key information on trustees and for some information to be publicly available (a bit like Companies House).
  • updated rules on disqualification of charity trustees and individuals employed in senior management positions in charities.
  • a power for OSCR to issue positive directions to charities. Currently it can only issue negative directions telling a charity not to do certain things.
  • a power to remove charities from the Scottish Charity Register that are persistently failing to submit annual reports and accounts.
  • requiring Scottish registered charities to have and continue to have a connection in Scotland. 
  • the ability to make inquiries into the former charity trustees of bodies which have ceased to exist and bodies which are no longer charities.
  • creating a new requirement that a de-registered charity’s assets must be used not only to further charitable purposes but also to meet the public benefit test.
  • updates to OSCR’s powers to gather information when making inquiries.
  • the extension of the OSCR ‘reorganisation provisions’ to help charities established under legislation etc have a more streamlined process for making updates to their governance and constitutions.

Beyond the main questions… other matters raised in the consultation responses

The consultation also prompted wider thoughts about areas of reform for Scottish charity law.

Ideas and topics in the mix included a review and re-think of the fundamentals of the Scottish charity test, a renewed look at what ‘public benefit’ means, the role and regulation of social enterprise, payment and remuneration for trustees, the process for existing charities to incorporate (often to become a SCIO), updated rules on SCIO member duties (on member duties see this blog) and winding-up procedures, the interaction between rules and regulatory requirements across UK jurisdictions and regulators as well as developments (on a statutory footing) of the notifiable events framework.


A survey has now opened to capture current views on parts of the review consultation topics. The survey is open until 5 February 2021. It can be accessed here.

For guidance and help with charity law and governance matters, get in touch:- Alan Eccles / 07470808717

He is an experienced lawyer who is very well known among sources for advising clients on charity law matters.” Chambers High Net Worth 2020

Alan is “highly experienced in advising third sector organisations” … “efficient and has a very in-depth knowledge of the Scottish charity scene” Chambers & Partners 2020

Charities, third & impact sector

Charity legal vehicles: a nation decides – keep counting

Counting to determine a nation’s preference is currently in the news. Away from the US Presidential vote, it also sheds light on current trends on the setting up of Scottish charities. The trend is very much in favour of Scottish Charitable Incorporated Organisations (SCIOs). We think that is correct and the number of SCIOs should indeed keep on counting upwards.

Looking at the latest statistics available from OSCR [the only voting irregularity will be us totting anything up wrong, but the margin of any error should be small!].

Unincorporated association……………………………7



CIO (English dual registered charity)………………2

SCIO………………………………………………………………. 51

Within these figures are not only brand new charities, but those opting to become incorporated charities (usually a SCIO).

We will blog separately on the merits of each type of legal vehicle and its appropriateness for (different types of) charities. *spoiler alert* We don’t like trusts and unincorporated associations and prefer SCIOs and companies.

For guidance and help with charity law and governance matters, get in touch:- Alan Eccles / 07470808717

He is an experienced lawyer who is very well known among sources for advising clients on charity law matters.” Chambers High Net Worth 2020

Alan is “highly experienced in advising third sector organisations” … “efficient and has a very in-depth knowledge of the Scottish charity scene” Chambers & Partners 2020

Charities, third & impact sector Private client

October blog round up

Spooky law! Trusts mingling with other areas of the law

It is that spooky time of year. In one update we brought you the strange world where trust law intermingles with other areas of the law. It creates what we have called a legal multiverse. That is a place to inhabit with care. And it is an area that has been making an appearance in courts showing it can matter in practice. Putting in place the right structure and documentation to accommodate the mix of legal areas will pay dividends in the longer term… and avoids frights! Read more here.

Surprise! Another Supreme Court charity law decision… and some Scottish developments

October saw another significant 2020 Supreme Court decision about charities. On this occasion it was about the application of the Equality Act and the permissibility of restricting services and access to benefit to specific group or community. The case also highlighted the general importance of a charity’s governing document/constitution and its purposes. Our blog is here.

In Scotland, OSCR issued an Inquiry Report about its decision to direct a charity to not distribute and use its funds while OSCR sought the appointment of a judicial factor to ‘take over’ the management of the charity. It is an example of a charity that managed to raise funds, but there were issues with the application of those funds to the extent that it was not spending its money. Read about what happened here.

A wider update on some Scottish charities developments was also provdied by us. As well as extension to the SCIO virtual meeting rules, it also considered the Disclosure (Scotland) Act 2020 and charities and third sector points within Scottish Government’s Programme for Government. The update can be found here.

A will as a form of consent

We updated on a case where the Court of Session was asked to consider whether or not wording in a will was sufficient to constitute consent to IVF treatment. A decision that is interesting in its own right and also raises wider possibilities about what else wording in a will could constitute (including in death benefits nomination situations). Here is our overview of the case and its potential wider implications.

Go follow… twitter

Follow @WillsCharityLaw to see the latest blogs and more.

For help and advice on succession and estate planning law or charity legal issues, get in touch with Alan Eccles: / 07470808717.

“An experienced lawyer” who is “a superb strategist and is extremely knowledgeable”. Chambers High Net Worth 2020 directory

He is an experienced lawyer who is very well known among sources for advising clients on charity law matters.” Chambers High Net Worth 2020

Alan is “highly experienced in advising third sector organisations” … “efficient and has a very in-depth knowledge of the Scottish charity scene” Chambers & Partners 2020

Alan Eccles… a Legal Influencer for Private Client (UK) – Lexology Marketing Awards

Charities, third & impact sector

Getting on OSCR’s ‘Wick’? Inquiry Report into charity

OSCR has issued an Inquiry Report into Wick Academy Development Fund (“WADF”). WADF was set up as a charity in 2002. It aimed to raise funds, it is understood, for sporting facilities in Wick. WADF raised funds through a lottery (called “Lucky Letters”). Lucky Letters proved successful. Over £100,000 was raised and the charity currently holds over £140,000. However, WADF has apparently failed to apply funds to further its charitable purposes and provide public benefit. It is case of non-spending of raised funds.

The situation with WADF raises a few points, including:-

OSCR has determined that the charity is not providing public benefit and in the event WADF be removed from the charity register it would (still) not apply it funds for its charitable purposes. Charities removed from the register still have statutory duties to apply their funds for their charitable purposes. Although, as noted in the Scottish charity law review consultation, there is no statutory requirement to provide public benefit after removal from the register.

OSCR’s approach to WADF has been to issue a direction to prohibit the charity distributing or otherwise parting with any funds without OSCR’s consent. It is a negative direction to stop action. Again, the review consultation has highlighted that OSCR has only negative directions at its disposal and cannot positively direct a charity to take particular action. The result in WADF is OSCR’s intention to apply to the court for a ‘judicial factor’ to be appointed to take full control of the charity.

As we have blogged on before, grant-making plans are just as important as fundraising drives. It seems an issue in WADF (from the OSCR Inquiry Report and recent press reporting) has been settling on an agreed project for spending the money raised. WADF successfully and quickly raised its funds. It has perhaps stumbled to then spend the cash.

While the OSCR report does not reveal detail, a situation such as WADF underlines the importance of trustee decision-making. Should trustees be called to explain decision-making (including non-spending of funds), they will wish to be able to show a proper consideration process. A process that must be rooted in trying to further the charity’s purposes and provide public benefit. While trustee decision-making is ordinarily a private matter, should there be public or regulatory scrutiny, a robust and documented process will help trustees meet any such scrutiny. There can be good reasons for not spending funds, but there needs to be considered reasons for taking such an approach.

Engagement with OSCR is important. OSCR is required to be a proportionate regulator. We would suggest that few would disagree that OSCR works with that principle at heart. The Inquiry Report notes that an issue with WADF has been OSCR having “engaged repeatedly” with charity and not receiving satisfactory responses.

If a charity cannot spend it funds, it might need to look for a new home for the funds. Dissolution clauses can provide rejuvenation. Many (and all new) charity constitutions will include a clause that provides that a proposed dissolution of the charity must pass funds to another charity with similar purposes. This requires OSCR consent. Finding a new home for funds when they are proving difficult to spend by a charity could provide an answer in some cases and give those funds a new lease of life. Of course, before embarking on such a course of action, trustees must be assured that the funds are not restricted to purposes and conditions attached to how those funds were raised. Without going into detail here, there is an OSCR process for applying to unlock ‘restricted funds’ should that be an issue.

For guidance and help with charity law and governance matters, get in touch:- Alan Eccles / 07470808717

He is an experienced lawyer who is very well known among sources for advising clients on charity law matters.” Chambers High Net Worth 2020

Charities, third & impact sector Private client

Keep up to date with the blog round-up

Get your penguins in a line: the Budget cometh

Our last round-up was just before the Chancellor’s summer statement. We now look to the run-in to the Autumn Budget. And while there was speculation it would be postponed, this weekend’s press has been full of new speculation about the contents of a Budget. A not particularly appetising mix of tax increases across corporation tax, capital gains tax, inheritance tax and pension-related rules. If there was ever a time to be getting legal, tax and financial affairs in position, it is now. As someone said to me recently “you need to get your penguins in a line”… much better (and more positive) than “ducks in a row”.

The power (of attorney) is in your hands

The reporting on the legal authority to manage Britney Spears’ affairs has sparked back to life recently. It has been a long-running saga. The current iteration has been around whether or not Britney’s father should continue to be able make decisions under Californian conservatorship law.

While different legal rules, the Britney situation provides an opportunity (in this blog) to reflect on the Scottish position. It illuminates the value of granting a power of attorney and of avoiding a court process. The message is clear: everyone should grant a power of attorney in order to choose their own attorney(s) and the powers they have should you be unable to make decisions for yourself.

It’s not academic: real life charity trustee governance

We blogged on an OSCR inquiry report. OSCR investigated decision-making surrounding a settlement arrangement with an outgoing university principal. While the situation has specific facts, the OSCR conclusions and recommendations can readily be applied to all charities to support robust decision-making. In this matter, OSCR stressed the importance of the decision-making process, how meetings were called and held as well as the advice, options and information (that could have been) available to trustees and others.

Charities: duties of charitable company members

The Supreme Court issued a judgment about what duties charitable company members owe to charities. A decision described by some as ‘landmark’, it settled a case that had involved a number of lower courts and Charity Commission process. While an English decision about a charitable company and with a quite unusual factual background, it is nevertheless a decision Scottish charities will want to understand. The case background might have its own peculiarities, but it is not too difficult to imagine situations were the legal issues could crop up again (indeed, we have seen them before). Issues that could have governance and wider consequences for the charity.

Here’s our analysis of the judgment.

(A slightly different version was published in the Journal of the Law Society of Scotland.)

Compliance, tax and legacies: charitable funding update

We provided a short update on some current matters for charities across trends in some forms of legacy giving, tax compliance rules for charitable trusts (good news here) and a Gift Aid campaign. More here.

Feeling left out? Disinherited.

A recent British Columbia judgment prompted us to look at the Scottish rules on disinheritance. What happens if you are disinherited in Scotland? Can you disinherit a child under Scots law? What are the rights of a child or spouse/civil partner in an estate? What happens if you get less from an estate than hoped? Where does the court fit in? Our blog summarised the rules and estate planning points that should be considered when trying to get your estate and wealth to the ‘right’ people.

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For help and advice on succession law, powers of attorney and charity legal issues, get in touch with Alan Eccles: / 07470808717.

“An experienced lawyer” who is “a superb strategist and is extremely knowledgeable”. Chambers High Net Worth 2020 directory

Alan Eccles is “one of the leaders in private client expertise in Scotland.” Chambers High Net Worth 2019 directory

Alan Eccles is recognised as one of the leading advisers in the Scottish charities sector.” Legal 500

very well known among sources for advising clients on charity law matters.” Chambers High Net Worth 2020

Charities, third & impact sector

OSCR inquiry into university: a lesson in charity governance

OSCR issued an Inquiry Report into a university. The inquiry related to the background to payments made in connection with a settlement arrangement with a former Principal, as disclosed in the university’s accounts.

OSCR concluded that certain charity trustees (those sitting on the university’s remuneration committee) had breached their duties under the Charities and Trustee Investment (Scotland) Act 2005. The inquiry looked at specific events, but there are wider lessons from it that all in the sector can benefit from considering.

A formula for charity trustee duties?

The OSCR inquiry set out to examine:-

(1) the process by which the settlement had been negotiated and agreed;

(2) the governance background to the decision-making; and

(3) whether or not the charity trustees had acted in the interests of the charity and exercised the care and diligence that is reasonable to expect of a person who is managing the affairs of another person.

In some ways it really is the case that 1 + 2 = 3. A robust process within a strong governance framework will ordinarily lead to charity trustees fulfilling their duties to and expectations of exercising appropriate levels of care and diligence. The reference to “managing the affairs of another person” in the 2005 Act underlines the custodian-esque role of a charity trustee in looking after the charity and its assets and purposes.

Danger, danger… high voltage. Extra care in difficult situations.

OSCR noted and appreciated the difficult background to the decision-making and the urgency of the situation. It is perhaps the case that where trustees are faced with particularly challenging events that process and governance must be most remembered and put into practice. It should support the reaching of an appropriate decision and help create a record of thought process and accountability that should stand the test of future examination. Indeed, while a different background, some of the features and conclusions of this OSCR inquiry chime with the recent Charity Commission for England and Wales regulatory alert on transparent and accountable governance in larger charities.

Time heals (sometimes)… but even better to use it to prevent

An important university remuneration committee was held at very short notice. OSCR highlighted this. A meeting held at short notice can impact attendance as well as preparedness.

Yes, some decisions need to be taken promptly, but the effect of holding meetings quickly needs to be carefully considered as it can negatively impact the quality of decision-making. If some more time can be taken, take that opportunity. It might even be that the right decision for individual trustees and the group is that no proper decisions can be taken in the given time-frame. This issue proves that charity trustee decision-making is not always easy!

Policies, agreements and multi-regulation

The report noted that a severance policy was not in place. It also noted that some processes to fit with those expected and agreed with a third party, the Scottish Funding Council, had not been implemented. The university is an example of a charity that exists within a regulatory background beyond just charity law. As well as the 2005 Act, a university has higher education legislation, guidance and codes to consider.

As a wider lesson, charities should consider the polices they need or must have in place. As with any organisation, charities should keep under review arrangements and agreements that require them to do certain things or operate in a particular way. Within good governance, charities must monitor compliance with other regulators and wider requirements – be that PVG or care regulation through to GDPR and health & safety.

Decision-making process: information, options, advice and records

The inquiry looked at a specific situation, but the report has guidance that will be useful for all charities irrespective of size or activities. This is particularly the case for decision-making procedures.

When arriving at decisions, charity trustees will want to consider the following:-

  • do they have the information they need? Are they aware of any missing pieces of background?
  • should the trustees be benefiting from professional advice to support their consideration of the matter?
  • have trustees looked at and considered other options? If one option is preferred, the reasons should be recorded.
  • minutes of meetings should be made and record the salient parts of the decision-making process and not just abstractly the conclusions of discussions. The background or ‘working’ behind a decision being particularly important for matters that would be deemed higher-risk or are based on an exercise of judgement/discretion.

It’s a team-game and the use of sub-committees

The positive use of sub-committees has featured previously in an OSCR report. For many organisations and particularly larger ones, sub-committees enable a sensible, manageable and effective way to do business. Notwithstanding this OSCR report focussing on the sub-committee trustees (and finding that it was those trustees that breached their duties), generally charities should recognise the collective nature of trustee decision-making and responsibilities. This is a feature of the Scottish Governance Code for the Third Sector, OSCR’s investment guidance and has in place in the 2005 Act itself (section 66(5)). So, the collective mindset, of a team working towards a goal and helping each other, is a healthy one for an organisation to have and foster.

For the wider sector, where sub-committees are being set up or already exist:-

  • their remit should be documented;
  • the extent of any delegated authority should be appropriate; and clear; and
  • the reporting mechanisms within the organisation need to bolster transparent and accountable decision-making.

OSCR: a forward-looking regulator

OSCR considered taking action against the individual trustees. However, looking to the future, it opted not do so. This was based on governance changes already made and further updates being developed by the university. This is another example of where OSCR is looking to use its functions to improve governance in the future while understanding events that have happened and not simply ‘raking over the coals’.

For guidance and help with charity law and governance matters, get in touch:- Alan Eccles / 07470808717

Alan Eccles is recognised as one of the leading advisers in the Scottish charities sector.” Legal 500

He is an experienced lawyer who is very well known among sources for advising clients on charity law matters.” Chambers High Net Worth 2020

Charities, third & impact sector

Massive charity fundraiser and big legal points

An Australian viral fundraising campaign and an accompanying court decision highlight vital issues about charity giving and grant-making. Issues that apply as much to Scotland as they do down under.

What’s happened in Australia?

Australian comedian Celeste Barber launched a fundraising campaign on Facebook. It struck a chord, went viral and raised a record-breaking A$50 (£27m). It was connected to the recent terrible bushfire season.

In particular the campaign said that funds raised would be directed to the New South Wales Rural Fire Service (in particular the trust known as the ‘NSW Rural Fire Service & Brigades Donations Fund’ (the “Fire Service Fund”)). It turned out that many donors had hoped the funds raised would then be distributed to a variety of organisations and good causes and not just to the much more restricted (including geographically) purposes of the Fire Service Fund.

Court guidance was sought on the plans for distributing the money raised. The Supreme Court of New South Wales has now said that the Fire Service Fund cannot pass on funds to other organisations and beneficiaries outwith its stated purposes. In particular, the Australian Red Cross, animal charities and bushfire victims will not be able to benefit.

What are the issues?

The bushfire fundraising was directed towards a particular fund- the Fire Service Fund. The Fire Service Fund has its own purposes. Those purposes essentially put a wrapper around the donations and require them to be ultimately used in a manner that is consistent with those purposes. Uses outwith those purposes would not be permissible.

The beliefs held by donors about the campaign and how the money could be used could not widen out the purposes of the Fire Service Fund. The Fire Service Fund’s (as the recipient of Celeste Barber’s appeal) purposes were critical and set out the parameters for how funds could be used. The grants had to be within the four corners of the Fire Service Fund’s stated purposes.

The bushfire situation is also akin to organisations that fundraise for a particular purpose or project. In those situations donors are donating for a specific purpose. That attaches conditions to the donation and it must be used for that specific stated purpose. For the recipient charity it creates a “restricted fund” which must be used in line with that specific fundraising appeal. The charity, of its own volition, would not be able to divert the funding to use for other purposes, however worthy.

The Australian case highlights that where funds are raised for a particular organisation, its purposes will be critical in how the money generated can be subsequently paid out. Likewise, where there has been a campaign with a particular, specific purpose, the funds must be used for that restricted purpose and (unless consents obtained) not for the charity’s general funding or different project.

Things to think about when launching fundraising appeals

Ensure the appeal adheres to fundraising rules

Avoiding a rundown of them here to keeps things more brief, but there are statutory rules about fundraising that need to be followed. Any questions on that, do get in touch.

Think about the wording used on the appeal … are people clear?

It is important that the basis upon which people are giving is workable and covers the causes, need, equipment etc that you plan to support. People need to be clear about what is being and can be supported.

With that, there also needs to be a workable way for money raised to be distributed. The process of grant-making can be just as important as the raising of the funds. A lack of a robust and effective grant-making process can undermine the impact of the campaign and inhibit continued giving.

Donors should also check out what the purpose of the fundraising appeal is. Donor expectations can be difficult to manage. They could have expectations that cannot be met by the particular appeal (or the recipient organisation). A campaign going viral can create a belief that it can fund X, Y and Z when it can legally only support X. It has been reported that Celeste Barber expressed frustration that raising “a f***-tonne of money comes with a f***-tonne of people telling you what you should do with it.” Of course, a key factor in the Celeste Barber appeal is that it was indeed a viral success (her original aim was A$30,000!) and that brings with it great (and unexpected) successes and opportunities as well as some real challenges.

Of course, the complexities and importance of grant-making lead many to make an existing charity the recipient of the campaign. To that, we now turn.

Issues where you are fundraising for an existing charity or organisation

If, as in the bushfire situation, funding is directed towards an existing organisation, there are a number of considerations. The considerations include:-

Check that the purposes of that organisation are sufficiently wide (or narrow!).

Is that organisational more generally aligned with your aims?

Speak to the organisation to make sure they are best suited to receive the funds and content to receive funds for your specific purposes.

There needs to be careful consideration given to how funds will be spent and distributed… grant-making can be just as important as fundraising.

Can the distribution of funds happen immediately?

With emergency fundraising, it is important to be in a position to promptly distribute support. That goes back to thinking about the grant-making process… it needs to be effective grant-making… that will enable funding to be distributed when it is needed. The expectations of donors need to be recognised as to when and how (usually quickly and to the ‘frontline’) funds will reach the ultimate cause.

Secure Gift Aid

Many giving platforms will help with this. If raising funds elsewhere, make sure Gift Aid is not lost. Captain Tom’s fundraising garnered £32.8m… and then £6.1m on top with Gift Aid.

Reporting and tracking: “did my donation make a difference?”

For some organic campaigns, this might be more difficult. However, donors will want to know how funds are spent and the impact they have had. That again ties in with a grant-making strategy for a campaign.

There may also be follow-ups with any third party organisations receiving and using funds to understand how the money made a difference. Those organisations might also be reporting in their own impact reports, annual report and accounts about the use of the money. An existing, experienced grant-making charity again can be well-positioned to manage the reporting and evaluation aspect. As well as underpinning that campaign, reporting will support wider confidence in giving and the charities sector.

Extending the purposes

Alongside the court ruling, there has been commentary in Australia about ways to extend the parameters of the Fire Service Fund. These have included amending the trust deed (although the terms of the trust deed appear to prevent this), creating a new charity which can then be the recipient of the winding up of the Fire Service Fund (not an Australian lawyer, but that would perhaps not be allowed due to the purpose to which the Fire Service Fund must be applied needing to continue to be respected even with a transfer to a new body) and even a special Act of Parliament.

These are also steps that would be considered and used in Scotland. Indeed, I have been involved in a number of Acts of Parliament to enable organisations to do things that their (historic) legal basis would not permit or had not anticipated. The other step in Scotland that could be available is applying to OSCR. The stated intentions of donors could also matter in any attempt to unlock restrictions.

Questions about or need help with philanthropy, fundraising or charities, get in touch with Alan Eccles:- / 07470808717

Alan Eccles is recognised as one of the leading advisers in the Scottish charities sector.” Legal 500