Scottish Charitable Incorporated Organisations – dissolution regulations amendments: consultation

Section C: Restoration of SCIOs to the Scottish Charity Register

Unlike with other legal forms for charities, a SCIO which is removed from the Register dissolves and ceases to exist. There is currently no mechanism under the law to bring a dissolved SCIO back into existence and restore it to the Register. Charities incorporated as a Charitable Incorporated Organisation (CIO) in England and Wales or as a company, can be brought back into existence and restored by the relevant regulator or the courts under certain circumstances.

The working group suggested that additional mechanisms for the removal of a SCIO should be balanced with a time limited ability for OSCR and/or the courts to restore a SCIO, broadly following the models established under CIO and company law.

In addition to the new proposals in section B, there are three existing routes to the dissolution and removal of a SCIO.

1. Solvent dissolution on application by the SCIO: A solvent SCIO can be dissolved following an application under regulation 3 of the Dissolution Regulations. The application must be accompanied by (amongst other things) a declaration of solvency and a statement outlining the proposed dissolution (including all assets and liabilities at the time the application is made).

If OSCR consents to the application then the SCIO must wind up its affairs, following which it must notify OSCR and provide evidence that it has complied with any conditions of consent. Conditions include that it has transferred any remaining assets to the body (or bodies) named in the resolution of the SCIO’s members and confirming that the SCIO has settled all outstanding liabilities and that it has no remaining assets.

OSCR must then remove the SCIO from the Register and the SCIO is dissolved

2. Insolvent dissolution on application by the SCIO: An insolvent SCIO with debts of over £1500 can apply for voluntary dissolution under regulations 4 to 6 of the Dissolution Regulations. This takes the form of a debtor application for sequestration made to the Accountant in Bankruptcy (AiB) via OSCR.

Once AiB have assessed and accepted the application they will establish what assets and liabilities the SCIO has and publish a notice of the sequestration in the Register of Insolvencies and make payments to creditors if there are sufficient funds to do so.

Once the sequestration is complete, AiB will transfer any surplus assets to the body named in the resolution of the SCIO’s members and notify OSCR. After which OSCR will then remove the SCIO from the Register and the SCIO will be dissolved.

3. Creditor-led sequestration: Qualified creditors (those owed £5000 or more) can petition for the sequestration of a SCIO as a body corporate under the Bankruptcy (Scotland) Act 2016, as applied with modifications by regulation 7 of the Dissolution Regulations. The process of sequestration, dissolution and removal then follows as above.

When considering restoration, we need to consider whether all forms of SCIO removal would require a route to restoration. At present there is no mechanism to restore a SCIO in the Dissolution Regulations. There is therefore a question as to whether restoration should be considered for any of the existing three routes to dissolution and removal.

The working group focused on restoration in relation to the proposed new powers for OSCR to remove unresponsive SCIOs (as set out in section B), rather than for all forms of SCIO removal. This was to ensure a balance against the new powers and to match other incorporated regimes, namely CIOs and companies.

The effect of restoration of a SCIO to the Register would bring the body back into existence and restores charitable status, as a body can only be entered in the Register if it is charitable.

Given the complexity of this proposal the questions are split into three sections. We have also produced a more detailed legal paper in Annex 3 that provides more context and discussion.

What SCIOs should be considered for restoration

Q 12 What types of SCIO removal should require a route to restoration? Please select all of the situations you think should have a route to restoration:

• Solvent dissolution on application of the SCIO
• Insolvent dissolution on application of the SCIO
• Creditor-led sequestration
• SCIOs that were not meeting the charity test, have failed to respond to a regulation 8 direction and have been removed by OSCR (new proposal - see section B)
• SCIOs that have failed to submit accounts, have failed to respond to OSCR’s reminders and have been removed under a process aligned with Section 45A (new proposal - see section B)

Please give reasons for your answer.

Reasons for restoration

The working group recommended basing SCIO restoration provisions on the model for restoring CIOs in England and Wales in Part 5 of the Charitable Incorporated Organisations (Insolvency and Dissolution) Regulations 2012 (the CIO Dissolution Regulations).

The Charity Commission for England and Wales (CCEW) maintains the Register of CIOs. CCEW can only administratively restore CIOs which were removed from its Register by CCEW itself, and then only where the removal was on the grounds of the CIO not being in operation (see regulation 16 of the Dissolution CIO Regulations) or on grounds connected with incomplete winding up under the Insolvency Act 1986 (see regulation 18). The former are broadly equivalent to removal of SCIOs under section 45A of the 2005 Act and Proposal B (unresponsive SCIOs). The latter grounds are not relevant to SCIOs.

In addition to the circumstances in which CCEW can administratively restore CIOs to its Register, the CIO Dissolution Regulations allow a range of interested persons to apply to the court (the High Court of England and Wales) for the court to order the restoration of a CIO dissolved under relevant provisions of the Insolvency Act 1986 as applied to CIOs. The 1986 Act does not apply to SCIOs, but the SCIO Dissolution Regulations (regulations 4 to 7) allow for the sequestration of SCIOs and their consequent dissolution. SCIOs dissolved at the conclusion of sequestration proceedings will not generally have had any assets or liabilities, and there is no mechanism for the transfer of surplus assets (to another charitable body) to be reversed so as to make those transferred assets available for any creditors who could establish a claim against a restored SCIO.

Q 13 What reasons should a SCIO be considered for restoration? For example, to allow a person to raise court proceedings – although see discussion of the Third Parties (Rights Against Insurers) Act 2010 in Annex 3.

Q 14 Should it be possible for a SCIO that had no assets at the point of removal to be restored?

Yes / No / Don’t Know Please give reasons for your answer

How could restoration work in practice

CCEW can only restore CIOs, and applications for court ordered restoration must ordinarily be made, in the period of six years following the CIO’s dissolution (regulation 35). Six years is also the period relevant to the retention of charities’ accounting records etc. in Scotland and in England and Wales (2005 Act, section 44; Charities Act 2011, sections 131, 134, 140, 165). The six-year time limit for applying to court to restore a CIO does not apply where the purpose of the application is to allow a personal injury claim to be made against the CIO.

Q 15 Should the Court of Session be given the power to order the restoration of a dissolved SCIO following its sequestration?

Yes / No / Don’t Know Please give reasons for your answer

Q 16 Please describe any other situations in which the Court of Session should be able to order the restoration of a dissolved SCIO.

Q 17 What time limit (if any) should apply to restoration of SCIOs by OSCR?

• Less than 6 years
• 6 years
• More than 6 years
• No time limit

Q 18 What time limit (if any) should apply to the making of court applications for restoration of SCIOs?

• Less than 6 years
• 6 years
• More than 6 years
• No time limit

Q 19 Please describe any advantages of introducing the possibility for SCIOs to be restored.

Q 20 Please describe any disadvantages of introducing the possibility for SCIOs to be restored.

Q 21 Where should the responsibility for any costs or administrative requirements associated with a SCIO restoration lie?

Q 22 Are there any alternatives to restoration we should consider?