Scottish Charitable Incorporated Organisations - dissolution regulations amendments: consultation analysis

A. Changes to the SCIO dissolution application process

In Section A of the consultation, we sought respondents’ views on proposed changes to the application process for a SCIO seeking to dissolve. The intention behind these changes is to promote confidence in the dissolution application process by:

• enhancing the information provided to the public about an application for dissolution
• increasing public awareness of applications and opportunities to make representations to the Office of the Scottish Charity Regulator (OSCR)
• removing practical barriers for SCIOs proceeding with applications

We asked seven questions about five proposed changes.

(i) A solvent SCIO should be ‘inactive’ once an application for dissolution is submitted

We sought views on whether a SCIO should be required to:

• cease its operations once it has applied to dissolve, other than any activities necessary to ensuring an orderly winding up
• notify OSCR of any substantive changes to its assets or liabilities after applying to dissolve

Q1. Do you agree or disagree that a SCIO should be ‘inactive’ once it submits an application for dissolution?

Most respondents who answered the question agreed with the proposal, and 16 respondents provided comments.

The main reasons for why respondents agreed included that it would:

• prevent a SCIO from incurring new liabilities or debts while going through the dissolution process
• bring SCIO regulations into closer alignment with those for other legal forms for charities, such as the company regime
• support effective use of grant funding – either through the completion of funded activities before applying to dissolve or repayment of grant funds
• support public understanding and safeguard public trust

Some respondents also highlighted the importance of there being clear guidance on any changes to the dissolution process (including a definition around ‘inactive’), and that OSCR should take a pragmatic approach to handling applications.

The respondent who disagreed did not leave a comment to explain the reason for their answer.

Q2. Do you agree or disagree that a SCIO should inform OSCR of any material changes in its assets and/or liabilities after it submits an application for dissolution?

All respondents who answered the question agreed with the proposal, and 15 respondents provided comments. These comments were similar in nature to those for Q1, summarised above.

However, distinct suggestions made included that:

• the definition of ‘materiality’ regarding a change in a SCIO’s assets and/or liabilities should be clarified in guidance
• only significant changes in assets and/or liabilities should require notification to OSCR

(ii) Amend the requirement for the declarations of solvency or insolvency and extend the information provided in the published notice of application

We sought views on changes to the forms that a SCIO must submit to OSCR when it applies to dissolve.

Q3. Do you agree or disagree with the changes set out in Annex 1 on the solvent dissolution application?

Most respondents who answered the question agreed with the proposal and 16 respondents provided comments.

The main reason for why respondents agreed was that they believed the new forms would be clearer to understand and easier to use for charity trustees. However, they emphasised the need for the application process to be accessible, and that any changes do not create an additional administrative burden for charity trustees.

Respondents who answered ‘disagree’ or ‘don’t know’ did not have an issue in principle with the proposed changes. They instead suggested amendments to the wording in the new forms, or changes to the overall process. These suggestions included:

• using a single form for both the declaration and notice
• rewording of clauses about a SCIO’s financial position to remove redundancy and increase clarity for trustees
• adding a statement on the status of any grant-funded activities that would require repayments to the funding body
• adding a statement of a single trustee’s authorisation to sign on behalf of all
• adding a statement on the members’ resolution
• that a SCIO should be inactive for a set period before it can apply to dissolve

Q4. Do you agree or disagree with the changes set out in Annex 2 on the insolvent dissolution application?

Most respondents who answered the question agreed with the proposal, and 17 respondents provided comments. These comments were similar in nature to those for Q3, summarised above.

A distinct suggestion regarding the insolvent application was that there should be a simpler process to dissolve an insolvent SCIO with low debt (< £1500).

(iii) Notices of solvent and insolvent dissolution published on the OSCR website, and anywhere else OSCR considers appropriate

We sought views on whether OSCR should have the power to publish a SCIO dissolution notice anywhere it considers appropriate. It is currently limited to publishing notices on its own website.

Q5. Do you agree or disagree with our proposal to allow OSCR to publish notices anywhere it considers appropriate?

Most respondents who answered the question agreed with the proposal and 14 respondents provided comments.

The main reasons for why respondents agreed included that they believed that it would help to increase local awareness that a SCIO in the area was intending to dissolve, and more broadly that it should increase transparency in the charity sector.

However, some respondents cautioned that this should be proportionate to the size of the charity, as it could lead to people making vexatious representations.

While most respondents believed that OSCR should have broad discretion in where it publishes notices, there were suggestions of specific places which included:

• sector-specific news websites, such as Third Force News, to raise wider awareness
• replicating the notification process for dissolving a company in Scotland by mandatorily publishing notices in The Edinburgh Gazette

“In the digital age, it is appropriate to give OSCR discretion to publish notices via multiple channels – including social media, email lists, community forums, or websites – to ensure that those affected by or interested in a SCIO’s dissolution are informed.” (Individual)

The respondent who disagreed believed that publishing notices on the OSCR website was sufficient, and that changing this arrangement could lead to the winding up process for SCIOs being inconsistent with other forms of charity.

(iv) Alter the publication period of solvent SCIO dissolution notices

We sought views on changing the publication period that a dissolution notice is on the OSCR website, from the current 28 days to a minimum of 28 days up to a maximum of 90 days.

Q6. Do you agree or disagree with the changes proposed to the publication period for the notice of a solvent SCIO’s dissolution application?

Most respondents who answered the question agreed with the proposal, and 15 respondents provided comments.

The main reasons for why respondents agreed was that they believed it would give more time to:

• creditors and other interested parties to be made aware of an application and make representations
• OSCR so it can better manage more complex dissolution cases

Some respondents stated there should be an expectation that straightforward dissolutions should continue to be completed within the current 28-day period. Another comment added that there should be consideration of how to safeguard a SCIO from incurring new liabilities if its dissolution requires more than 28 days to process.

Those who answered ‘disagree’ or ‘don’t know’ did not express an issue in principle with the proposal. They instead only had a difference of opinion with the time range for a new publication period. Alternatives they suggested included:

• matching the publication period for a reorganisation, i.e. a max of 42 days
• matching the strike off notice period for companies, i.e. a max of two months
• a three-month publication period, in alignment with Charitable Incorporated Organisations (CIOs) in England and Wales
• a fixed 90-day publication period for all notices

(v) Amend the requirement for a members’ resolution

We sought views on whether two-thirds of a SCIO’s trustees should be able to pass a resolution for dissolution. This would be an alternative route in cases where it has not been possible for the trustees to obtain a resolution from among two-thirds of the SCIO’s membership.

Q7. Do you agree or disagree with our proposed approach to amend the requirement for a members’ resolution?

Most respondents who answered the question agreed with the proposal, and 17 respondents provided comments.

The main reason for why respondents agreed was that they believed this would help prevent a SCIO’s dissolution from being delayed and/or it remaining on the Register. Several respondents referred to instances where the membership of a SCIO had become disengaged, which had made dissolving it more difficult.

“The circumstances outlined in the consultation paper are not uncommon so there needs to be an approach that recognises circumstances when members cannot be contacted or are no longer prepared to engage.” (Individual)

Respondents were also clear that this process should only be used as an alternative to obtaining a member’s resolution. Some suggested that trustees should be required either to seek OSCR’s permission if they cannot obtain a resolution from the membership, or to explain and justify why a resolution has not been sought.

The respondents who disagreed with the proposal believed that providing an alternative route could reduce accountability in the dissolution process and questioned what would happen in a situation where a SCIO was not quorate.