Scottish Charitable Incorporated Organisations - dissolution regulations amendments: consultation analysis

B. Removal of SCIOs from the Scottish Charity Register

Section B of the consultation sought respondents’ views on proposals to provide OSCR with the power to remove a SCIO from the Scottish Charity Register (the Register) without having to apply for an order to the Court of Session.

This would permit OSCR to remove a SCIO where it either:

• no longer meets the charity test and has not responded to a direction issued by OSCR under Regulation 8 of the Dissolution Regulations
• has failed to submit its accounts and been unresponsive to communications from OSCR (this would replicate its power under Section 45A of the 2005 Act for other legal forms of charity)

Q8. Do you agree or disagree with the proposal to allow OSCR to remove SCIOs from the Register where the SCIO is not meeting the charity test and has failed to respond to directions issued by OSCR?

Most respondents who answered the question agreed with the proposal and 19 respondents provided comments.

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

• bring the removal process for SCIOs into alignment with other legal forms, ensuring a more consistent approach
• make the removal process simpler and more efficient for OSCR by reducing the need for court involvement
• facilitate the removal of non-compliant and inactive SCIOs, which would safeguard public trust by ensuring a more accurate Register

While the response from the Scottish Council for Voluntary Organisations (SCVO) agreed with the proposal, it also recommended that a SCIO’s removal should only proceed after confirming the state of its activities and finances and considering whether removal would be appropriate:

“We encourage the Scottish Government to implement and make clear the working group’s recommendation that ‘[t]his power should only be exercised following inquiries by OSCR to establish whether the SCIO is active, what assets (if any) the SCIO holds and whether the removal of the SCIO is the most appropriate course of action’.” (SCVO)

OSCR’s response disagreed with the proposal as currently outlined. This concerned the aspect of the proposal that a response from the SCIO would halt its removal from the Register, even if it had failed to comply with a Regulation 8 direction:

“We agree that where a SCIO is not meeting the charity test and has failed to comply with a direction under regulation 8, the SCIO should be given a three-month notice period of our intention to remove it from the Register.

“However, we do not agree that where contact is made by the SCIO this should halt the removal process. Should a SCIO make contact but fail to comply with the direction, the SCIO will still not meet the charity test.

“In such circumstances, the only route available to remove the SCIO from the Register would be for OSCR to apply to the Court of Session for an appropriate order. This would be a costly process and in our view is not proportionate use of OSCR's or the Court's time.

“In our view the removal process should only be capable of being halted by the SCIO where it complies with the direction within three months of receipt of OSCR's notice or intention to remove.” (OSCR)

Q9. Do you agree or disagree with the proposal to align the process for removing a SCIO from the Register with that set out in section 45A of the 2005 Act?

All respondents who answered this question agreed with the proposal, and 13 respondents provided comments. These comments were similar in nature to those for Q8, summarised above, and focused on ensuring transparency and consistency with other legal forms.

The Law Society of Scotland’s response highlighted that removing a SCIO in a process aligned with Section 45A could require consideration of how its assets would be managed:

“… it is important to note that the exercise of the section 45A power for charities other than SCIOs does Not cause the dissolution of the organisation – it simply means that it is no longer a charity. If it continues to exist it can still hold assets as a non-charitable entity (either directly or via holding trustees).

“By contrast, in the case of a SCIO, its de-registration will mean that it ceases to exist. The regulations will therefore need to specify what happens to any residual assets. In England and Wales, in the equivalent situation of a compulsory dissolution of a Charitable Incorporated Organisation (CIO) instigated by the Charity Commission, the CIO’s residual assets pass to the Official Custodian for Charities. With no equivalent in Scotland to the Official Custodian, we suggest the logical solution is for assets to vest in the King’s and Lord Treasurer’s Remembrancer.” (Law Society of Scotland)

Q10. Where OSCR is considering administratively removing a SCIO, what steps should OSCR take to ascertain the financial position of the SCIO?

There were 17 responses to this question. Among the steps that OSCR could take, suggestions from respondents included:

• contacting current and former trustees
• issuing a public notice for representations
• directly inspecting the charity’s finances
• appointing an independent auditor
• freezing the SCIO’s assets

Several respondents stated that they believed any inquiries into a SCIO’s finances should have a clear timeline, to help prevent its removal from being delayed.

“OSCR has to be given discretion here. It needs to try to find out as much about the SCIO as it can, but in some cases it may not be able to find out anything - but still needs to be able to proceed to remove the SCIO.” (Individual)

Q11. Should the removal provisions proposed in Section B only be introduced if there is an ability for restoration?

Responses to this question were mixed. While 11 respondents agreed, 9 disagreed or were unsure. There were 14 respondents who provided comments.

The main reason for why respondents agreed was that it would provide a mechanism for dealing with any assets identified following dissolution, and that it would align the removal process for SCIOs with other forms of charity. This would help to prevent creditors and other affected stakeholders from being disadvantaged.

Those who answered ‘disagree’ did not have an issue with restoration in principle. They instead believed that removal powers should be prioritised, so that OSCR can deal with non-compliant and inactive SCIOs that remain on the Register.

OSCR shared this view, and in their response they set out that:

“While OSCR would prefer that there was an ability to restore (and we have expanded upon our reasoning in separate communication to Scottish Government), if this is not possible we would still wish the SCIO removal provisions to be introduced. These provisions will assist us to ensure that the Register contains only active, compliant SCIOs that provide public benefit.

“In our view the actual and current disadvantages (both for good regulatory order and the reputation of the SCIO the legal form) of having to retain a growing number of moribund SCIOs in the Register outweigh the possible risks of having a regime for SCIOs that is not on a par in this respect with companies and CIOs where there is a statutory power to restore.” (OSCR)