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The Charities (Protection and Social Investment) Act 2016 was recently passed by Westminster for application in England and Wales. Although it is not yet fully in force it will provide greater regulatory powers to the Charities Commission south of the border. Although the Act will not apply to Scottish charities, Trustees should remind themselves of the equivalent powers of the Office of the Scottish Charities Regulator (“OSCR”) in Scotland.

In England, the Charities Commission can make general inquiries into a charity as well as obliging the charity to provide information/evidence necessary for the inquiry. If the Commission considers there to have been misconduct or mismanagement in the administration of the charity it has the power to suspend trustees, employees or directors or ultimately remove such persons. The 2016 Act will give the Commission the power to issue official warnings to charities (or their trustees) where there is a suspected breach of trust or duty or other misconduct. Ultimately, the Commission can direct the charity to be wound up where it no longer promotes its purposes.

In Scotland, similarly OSCR can make inquiries into a charity either of its own accord or as a result of a referral by a third party, perhaps as a result of suspected misconduct or mismanagement of the charity’s affairs. In addition, OSCR can also look behind the charity itself and inquire into a body that controls a charity, or a person acting on behalf of the charity. Accordingly, OSCR can inquire into what may be called “shadow” directors or Trustees. However, OSCR does not have the same power as the Charities Commission to issue official warnings to give the trustees a chance to rectify any misconduct.

If an inquiry is raised, the persons involved may be required to provide OSCR with whatever information it needs to carry out its inquiry. Following this OSCR can direct the charity or any person involved not to take any particular action for up to six months. Failure to comply with such a direction is a criminal offence and as such any directions given must be followed to the letter.

Similarly, the existing law in England and Scotland provides grounds for automatic disqualification of charity trustees for offences involving dishonesty or bankruptcy. The 2016 Act seeks to extend the list in England to the offences of terrorism, sexual offences and money laundering offences.

If OSCR considers that there has been misconduct in the administration of the charity it can suspend any person it considers responsible for, or privy, to the misconduct or alternatively it can direct the person to stop acting altogether. As an ultimate sanction, OSCR can remove a charity from the Register if it considers that it no longer meets the charity test.

The new provisions in England and Wales therefore appear to largely reflect existing practice in Scotland and although the penalties for a breach of duty as a Trustee can be severe, Trustees who take their duties seriously, take advice and act honestly and reasonably in their dealings with the charity are not likely have any difficulties with the regulator.

For further information on the legal structure of charities, the duties of charity trustees or the powers provided to OSCR, please contact a member of Stronachs’ Third Sector Committee or Private Clients teams.

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