Scottish Charitable Incorporated Organisations (SCIOs) Working Group, Seventh Meeting
Wednesday 23rd September 2009, 14.00 - 16.00, Room Fleming B, Atlantic Quay, Broomielaw, Glasgow
Ken Butler, Scottish Drugs Forum
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
Steve Kent, Edinburgh Voluntary Organisations Council
Stuart Morrison, Scottish Government
Stephen Phillips, Law Society of Scotland
Anita Popplestone, Scottish Government
Simon Roberts, Accountant in Bankruptcy
Ross Rutherford, Accountant in Bankruptcy
Item 1 - Welcome and apologies
1. The Chair welcomed members of the Working Group to Atlantic Quay and thanked Simon Roberts and Ross Rutherford from the Accountant in Bankruptcy (AiB), for again joining the meeting. Apologies were noted from Adrienne Airlie, Susan Deighan, David Brownlee, Stuart Cross, Alex McDougall and Gavin McEwan.
Item 2 - Minutes of 6th meeting
2. The minutes of the sixth meeting, which took place on Tuesday 28th July 2009 at St Andrew's House in Edinburgh were approved. The Chair noted that the Consultation Report on the Charitable Incorporated Organisation for England and Wales had been published, a link to which had been circulated in advance of the meeting.
3. SCIOs Consultation - Draft Document
3. Discussion then turned to the draft SCIO consultation document which had been circulated on 15 September 2009. Overall, there was a general consensus that the draft had improved from that considered at the previous meeting. It was more accessible and, although lengthy, it was considered necessary in light of the complex subject matter. By including more detailed discussion of technical aspects in a separate section, readers could consider the options appraisal and dip into other parts if they wished. Given the level of background and explanatory detail provided, the Group did not consider a glossary to be required. The Chair mentioned that a draft summary or guide to the consultation had been prepared to make the consultation more accessible.
3.1 SCIO options/models
4. The Working Group was broadly content that the redrafted consultation document accurately presented its preferred option. It was felt that the alternative options were balanced well and there was greater clarity and distinction between the three options than there had been between the previous four.
3.2 Technical aspects
5. Having noted that the proposed accounting framework for the CIO would most likely follow the charity law approach, the Group agreed that this provided further reason to maintain this approach in the SCIO consultation.
Members and charity trustees
6. The detailed explanation of the law of agency in relation to the liability of charity trustees was considered unnecessary and could cause more concern instead of allaying it as intended. It was agreed that this section would be pared down to draw a simple parallel with the position of Directors under company law.
7. It was agreed that paragraph 121 should be clarified to refer to the provisions on disqualification of charity trustees under the 2005 Act.
8. It was also agreed that paragraph 122 should emphasise that a provision specifying a minimum age of 16 for charity trustees of a SCIO would be our preferred approach, rather than presenting it as a given.
9. As the term "members" would have a different connotation for membership charities than that intended in the SCIO provisions, which were closer to the company law definition, it was agreed that further explanation of the term would be helpful to avoid confusion.
10. The Group agreed that paragraph 112 should be redrafted to be more forthright in aligning the SCIO regime with the existing Charities References in Documents (Scotland) Regulations.
11. It was suggested that the section on registers of members and charity trustees (paragraph 119ff) conflated the two types of register. Question 16 should in fact be split to distinguish the register of members from that for charity trustees, as respondents may have different views on each. As OSCR can request information in the discharge of its regulatory functions, there was no need to include a consultation question or provisions to allow for these registers to be submitted to OSCR on demand.
3.3 Raising finance
12. The Chair mentioned that he had met with the Chief Executive of Social Investment Scotland (SIS), and had been interested to learn that some lenders considered unincorporated associations to present less risk than might be supposed. Although they lacked limited liability and legal personality, the strength of membership, which tended to be very personally committed to the continued viability of the organisation, meant that defaulting was less likely. The discussion had also served to reinforce the views already received from some funders and lenders, that the form of a charity rarely affected funding or lending decisions.
3.4 Insolvency sections
13. The insolvency sections of the consultation document were still regarded as the areas upon which the Group were unclear as to the best option to pursue. OSCR intended to do a resource impact assessment on each of the options in the consultation, following its publication, but considered the insolvency proposals to be the most problematic. The information OSCR had on charity insolvency was limited. Notification of insolvency proceedings in the court suggested that the numbers were very low. However, OSCR received a high number of applications for consent to wind up and it was not clear how many of these might be insolvent. If the numbers were in fact very low, as the Court notifications suggested, then would there be sufficient justification to spend the considerable time and effort required to develop a bespoke insolvency regime?
14. Colleagues from AiB provided feedback from a meeting with the Scottish Law Commission on its project concerning the law of judicial factors. The aim of the project was to clarify existing law and identify possible reforms that would make the service more streamlined, consistent and cost-effective, potentially removing a route through the Courts. However, in advance of the publication of a discussion paper, it would not be appropriate for the SCIOs consultation to present this project as the preferred independent third-party option. Timing would be affected by the extent to which any proposals would require primary or secondary legislation and the Scottish Parliamentary elections in 2011.
15. Other comments were shared, including some from members who were not able to attend the meeting, which called for greater clarity around the timing implications of each option and issues of competence in relation to the application of reserved legislation. The consultation could also be clearer on the rarity of charity insolvency but balanced by an emphasis on the extent of the impact which could be very significant.
16. It was noted that there might be limited interest in the insolvency sections from the majority of readers and this begged the question as to whether it should be split off from the main consultation paper and dealt with separately. However, to do so would run the risk of being accused of failing to address the difficult issues or even hiding them. Would it be better to publish the consultation acknowledging that none of the insolvency options were ideal and that each could take a significant time to develop?
17. An alternative approach would be to introduce a fifth option that would rely on the default or "do nothing" option in the interim, leaving the regulations silent on insolvency at the outset, which would mean that SCIO insolvency was dealt with in the same as that of unincorporated charities. This would be a short-term solution, allowing time to develop a more fully integrated, purpose-built insolvency regime for SCIOs, probably drawing on options 2 or 3, which could then be implemented when ready.
18. This interim default option would not necessarily offer an attractive route for charitable companies wishing to escape their creditors as the option of being pursued through the Courts would still be open to creditors under the default option. Would there be a role for OSCR in assessing whether an existing charity were seeking to convert to seek an easier route for insolvency? OSCR sought some financial information during its change of legal form process but this was only concerned with tracing the charitable assets. As a charity regulator, OSCR was not primarily concerned with assessing the solvency of charities wishing to change form.
19. In terms of drafting points, definitions of solvent and insolvent could be clarified at paragraph 147, a task which AiB offered to assist with. Further amendment was required at paragraph 168 on disqualification, which OSCR agreed to reflect on.
3.5 Overall structure of the document
20. It was noted that Part 5 concerning the role of the regulator had no questions attached and seemed to lack purpose. The Group wished to retain some aspects such as the discussion of resource implications and it was agreed that this could be moved to the beginning of the document, which set the context.
21. The section on next steps included a drafting note suggesting that further consultation might follow on draft provisions. OSCR's strong view was that this would be vital in ensuring that the regulations were fit for purpose and this was best tested by seeking the opinion of the practitioners who would be working with them. Given that this aspect might only be of interest to a limited number of professional advisors and charity employees, it was agreed that this might be best achieved through a shorter, more targeted consultation, perhaps through the use of focus groups.
22. The Charity Law Team had sought the advice of analytical colleagues in redrafting the questions. As a result, more effort had been given to making them shorter, more focussed and closed, to make analysis of responses more manageable but allowing further room for comment and expansion, if desired.
23. The Working Group proposed that the questions after each of the main options be extended, to ask whether we have correctly identified the advantages and disadvantages of each. More space for supporting comments would be helpful under questions 8, 9, 10 and 11. Greater linking between questions 12 and 13 would also be helpful. The Charity Law Team undertook to review all the questions in light of these and other points raised.
4. Any other business
24. The Chair suggested that once the further amendments identified in discussion had been made, the consultation draft should be circulated to members for final agreement, before being submitted to the Minister for approval to publish.
25. The consultation process would be better enhanced with a series of half-day events at different locations around the country, some focussed for professional advisors and funders and lenders. It had been suggested that they be concentrated in November and December but as this was a particularly busy time for conferences and events, dates in January might be better. The three month consultation period could also be extended to allow for the holidays. It was suggested that attendance might be higher if travel expenses were paid and the Chair agreed to consider whether this would be possible.
26. A number of Working Group members offered to help plan and participate in events, delivering presentations and facilitating break-out groups. The Chair thanked them and suggested that the Charity Law Team liaise on the arrangements.
27. The Chair asked whether the Group wanted to meet again following the analysis of consultation responses and it was agreed that this would be useful. SCVO suggested the Gathering, which was to be held in Edinburgh in February 2010, as a possible venue for holding a seminar on the results of the consultation and it was agreed that this would provide a useful target date to aim for.
28. The Chair thanked members again for their participation, work and advice, and looked forward to presenting the Group's recommendations in the form of the consultation paper to the Minister for approval.