Scottish Charitable Incorporated Organisations - dissolution regulations amendments: consultation analysis

C. Restoration of SCIOs to the Scottish Charity Register

Section C of the consultation sought respondents’ views on whether OSCR and/or the courts having the ability to remove a SCIO from the Register should be balanced with a time-limited ability to restore it. This would have the effect of bringing a removed body back into existence. It would also restore its charitable status, as it can only be entered into the Register if it is charitable.

Given the complexity of this proposal, as there is at present no mechanism to restore a SCIO, we asked 11 questions around three topics.

(i) What SCIOs should be considered for restoration

We sought views on which methods for removing a SCIO from the Register should require a route to restoration. This included existing methods and those newly proposed in the consultation.

Q12. What types of SCIO removal should require a route to restoration?

We asked respondents to select all the removal methods listed above that they thought should have a restoration route. There were 17 respondents who selected one or more of the options, 13 of which provided additional comments. We also received comments from two respondents who did not select any of the options.

There were several common reasons given by respondents for their choices. These included that they believed that:

• OSCR should have full discretion to restore a SCIO under any circumstance
• it would allow for assets identified following removal to be protected
• it would support legal action initiated against a removed SCIO to proceed
• it would allow for a SCIO removed because of governance issues to be restored if these issues have been resolved

Some respondents believed that the power to restore a SCIO removed following a creditor-led sequestration should lie with the courts, as they would have initiated the removal process.

Respondents also gave their reasons for why they did not favour restoration for a removal method. This included:

• for SCIOs that were solvent: that this would not align with similar law for CIOs or companies, and that a new charity should be set up instead
• for SCIOs that were insolvent / sequestrated: as this would have been due to poor governance / financial mismanagement
• for SCIOs that failed to meet the charity test: that this would not align with charity law in England and Wales where restoration is not possible in this circumstance

(ii) Reasons for restoration

We sought views on specific circumstances where a dissolved SCIO should be restored to the Register.

Q13. What reasons should a SCIO be considered for restoration?

There were 14 responses to this question, with comments being similar in nature to those for Q12, summarised above.

Among the reasons that respondents believed a SCIO should be restored included:

• so that OSCR can restore a SCIO where it was responsible for its removal
• so that assets identified following removal can be retrieved / protected
• so that legal action being taken against a removed SCIO can proceed
• so that a SCIO which had resolved the governance issues that had led to its removal can be restored
• to rectify a removal that was the result of an administrative error or regulatory misconduct

Q14. Should it be possible for a SCIO that had no assets at the point of removal to be restored?

Most respondents who answered the question supported the proposal, and 12 respondents provided comments.

Some respondents who agreed believed that the absence of assets should not be a barrier to restoring a SCIO, if there are valid reasons for doing so. Others said that it would be useful in case assets were identified at a later stage, or if funding was received following dissolution (such as a legacy or bequest).

Only two of the respondents who answered ‘no’ left a comment, with one stating that in such a circumstance it would be preferable to set up a new SCIO instead. The other respondent explained that there were other ways for dealing with discovered assets so may have misunderstood the question.

(iii) How could restoration work in practice

We sought views on the practical limits of restoration, in terms of the role of the Court of Session, time limits, advantages and disadvantages, responsibility for costs, and any potential alternatives.

Q15. Should the Court of Session be given the power to order the restoration of a dissolved SCIO following its sequestration?

Most respondents who answered the question supported the proposal, and 10 respondents provided comments. The main reasons for why respondents agreed were that they believed:

• the Court of Session should retain discretion in these matters
• it would protect the interests of third parties, such as creditors
• judicial oversight would align with best practice, and ensure a fair approach
• it would close gaps in current charity law in Scotland

One respondent cautioned that this should only occur in “exceptional” circumstances. The one respondent who answered ‘no’ stated that if the SCIO has been through sequestration it should be dissolved.

Q16. Please describe any other situations in which the Court of Session should be able to order the restoration of a dissolved SCIO.

There were eight responses to this question. While there was no consensus, an opinion expressed by multiple responses was that the courts should have broad discretion to order restoration under any of the permitted circumstances.

Respondents also gave examples of specific situations where they believed the courts should have involvement in a SCIO’s restoration. These included where:

• a SCIO had been dissolved following a court-led sequestration only
• the dissolution was a result of administrative error or regulatory misconduct
• any funding or governance issues that led to a SCIO’s dissolution have been resolved and it can make a case for its restoration
• there is broad community support for a SCIO’s restoration

Q17. What time limit (if any) should apply to restoration of SCIOs by OSCR?

Q18. What time limit (if any) should apply to the making of court applications for restoration of SCIOs?

We sought respondents’ views on whether there should be a time limit on the ability to restore a SCIO, either by OSCR or through a court application.

We chose six years as the median as this is the general limit on when a CIO can be restored, either by the Charity Commission or through a court order. It is also the retention period for charity accounting records.

The majority preference was a six-year time limit on restoration by OSCR. However, opinion was more mixed on a court-ordered restoration. While 9 respondents chose a six-year time limit, 8 chose less than six years, and 1 chose more than six years.

Q19. Please describe any advantages of introducing the possibility for SCIOs to be restored.

There were 13 responses to this question. The main suggestions from respondents on the potential advantages of introducing restoration included that it could allow for:

• a dissolved SCIO that was providing a community benefit to resume its activities if the issues that led to its dissolution have been resolved
• any charitable assets identified following a SCIO’s dissolution to be protected
• any dissolutions that were the result of an administrative error to be rectified
• charity regulation in Scotland to be closer aligned with the rest of the UK
• improved accountability and confidence in the Scottish charity sector

Q20. Please describe any disadvantages of introducing the possibility for SCIOs to be restored.

There were 13 responses to this question. The main suggestions from respondents of the potential disadvantages from introducing restoration included:

• the additional burden on OSCR in terms of resourcing and administration
• the potential legal and governance challenges in handling restoration, such as if the original trustees did not want to engage in the process
• if restoration was not time-limited: the potential for a SCIO’s dissolution to be uncertain if it can later be restored
• if restoration was not limited in scope: the potential for it to be misused, such as to take-over a dissolved SCIO from its original trustees

Q21. Where should the responsibility for any costs or administrative requirements associated with a SCIO restoration lie?

There were 15 responses to this question. The main suggestions from respondents for who should be responsible for the costs or administration of restoration included:

• the SCIO – either the trustees if they are the applicants, or by using any remaining assets to cover costs
• the applicant for restoration – if this is a different party from the trustees
• OSCR – either through additional resourcing, or limited to circumstances where removal was due to an error on its part

Q22. Are there any alternatives to restoration we should consider?

There were 12 responses to this question. Alternatives to restoration that respondents suggested included:

• suspending a SCIO for a limited period prior to removal, where it can seek to resolve outstanding issues
• merging a defunct SCIO into another charity with compatible purposes
• an initiative similar to the Revitalising Trusts Project to facilitate the transfer of assets found after a SCIO’s removal to an active charity
• OSCR carrying out further scrutiny of charity accounts and status applications to proactively identify SCIOs at risk of defaulting or being unsustainable