This article is one of a series of articles focusing on some of the more technical changes envisaged by the Charities Act 2022 (the Act), which was passed in February 2022. This series is intended to provide a helpful resource in considering these changes and their implications for you and your charity.
In this article we look at the changes for charities governed by statute or Royal Charter, and specifically the regime for amending their governing documents and introducing greater transparency about the process and its requirements.
- The Act grants the trustees of Royal Charter charities without an express power of amendment in their Charters a statutory power to amend their Charters, subject to Privy Council approval. This power was brought into force on 31 October 2022.
- The Charity Commission has agreed to produce some guidance for statutory charities in relation to the process for making a scheme under section 73 of the Charities Act 2011. The provisions of the Act that simplify the procedure by which Parliament approves these schemes also came into force on 31 October.
The previous position
Many viewed the procedure for altering the governing documents of charities established by statute and Royal Charter as unnecessarily cumbersome. Others defended what they saw as necessary safeguards, in place to protect the interests of these unique charities and their beneficiaries.
One thing which is widely acknowledged is that the process for making relatively minor amendments to the governance and administration of charities established by statute and Royal Charter could be time consuming and costly. Understandably, this often discouraged those managing these charities from making constitutional changes, resulting in charities having outdated and often impractical procedures: making a change to allow accounts to be sent to members by email rather than post, or amending the date of an annual general meeting, required the involvement of numerous parties and a complex, multi-stage application process. For many, the shortcomings of the regime were even more evident during the pandemic, due to the need for remote management and the increased use of technology in the operation of all charities.
The process for statutory and Royal Charter charities to amend their governing documents was (and, in many ways, still) is different to the process for other charities in three principal ways:
- Charity trustees of statutory and Royal Charter charities have less autonomy than trustees of other charities in seeking amendment to their governing documents – amendments are subject to the oversight of (in the case of statutory charities) Parliament or (in the case of Royal Charter charities) the Privy Council. Those Government Departments with a policy interest in the body requesting the amendment and the Charity Commission will also be consulted.
- There was a single procedure for all amendments, no matter how major or minor, unlike for other charities where the minor changes can be made more easily, with less scrutiny.
- Most other charities can seek a Charity Commission scheme to make an amendment if no other power enables them to do so. Whilst this can be expensive and time consuming, it is still simpler than the process that Royal Charter charities needed to follow to amend their Charters, namely applying for a Supplemental Charter or an Order in Council. A Charity Commission Scheme can only be used to amend a Royal Charter where the Charter itself contains a power to this effect.
- Section 73 of the Charities Act 2011 provides a mechanism by which a statute establishing or regulating a charity can be amended by secondary legislation (“the section 73 procedure”). The procedure requires the Charity Commission to prepare a scheme – in much the same way that it prepares schemes for other charities – that alters the provision made by an Act establishing or regulating a charity. The scheme is then given effect by order of the Secretary of State (subject to the following). In the past, if the statute establishing the charity was a public general Act, the order had to be approved by a resolution of both Houses of Parliament (“the affirmative procedure”). If it was a private Act, the order had to be laid before both Houses of Parliament and was subject to annulment by a resolution of either House (“the negative procedure”). Most orders under section 73 followed the negative procedure. In the absence of a Charity Commission scheme, the constitution of statutory charities can only be amended by an Act of Parliament.
Whilst acknowledging that charities established by statute and Royal Charter must accept an additional level of governmental regulation given the enhanced public interest in their operation, criticism of the former regime fell into four broad categories:
1. An unnecessarily complex, slow and costly process
The process was overly complex. This occupied staff time within charities and often led to the engagement of external lawyers to navigate the procedure, further adding to the cost of making constitutional changes. For Royal Charter charities, even where their constitutions contained an express power of amendment, it was not uncommon for the process to take up to a year, once all the various parties had been consulted. For statutory charities the process could take several years.
It was considered disproportionate for the Privy Council and Parliament to be involved in all amendments to the governing documents of Royal Charter and statutory charities, including minor amendments to matters of procedure and administration. The level of involvement was not tailored to the significance of the proposed amendment. The prestige and status attached to being a statutory or Royal Charter charity, and the importance of the accompanying Government regulation of these charities is not to be underestimated, but many felt that this involvement should be reserved to situations where the expertise and regulatory function would be more valuable.
3. A lack of transparency
Critics felt that the process was unclear and opaque, particularly in terms of process and timeline. This led to charities being discouraged from making (often much needed) amendments to their governing documents.
The regime was applied differently depending on the structure of a charity’s governing document and the presence of express powers of amendment.
What has changed under the Act?
A statutory power of amendment for Royal Charter charities that do not have an express amendment clause to be able to amend their Charters
The Act incorporates a new express amendment power for those Royal Charter charities that do not currently have such a power in their Charter. This will come as welcome news to many Royal Charter charities as it will generally obviate the need to follow the complex and time-consuming procedure required to obtain a Supplemental Charter. This power came into force on 31 October 2022.
Where the charity has a body of members the exercise of the power will be by resolution of the trustees and further resolution of the members, which is passed either at a general meeting, by 75 per cent of those members who attend and vote on the resolution or at a general meeting, by a decision taken without a vote and without any expression of dissent in response to the question put to the meeting or otherwise than at a general meeting, unanimously. Where a charity does not have a separate body of members the exercise of the power will be by resolution of 75 per cent of the trustees. These voting requirements match those for Companies Act companies. Such amendments will take effect on the date on which the Privy Council consents to the amendment (or such later date as the resolution specifies).
The trustees of Royal Charter charities without a power of amendment will also be able to seek an indication from the Privy Council Office as to whether a proposed amendment would be approved before putting the resolution to a vote of the charity’s members. This is what usually happens for those Royal Charter charities which do have a power of amendment, and is particularly helpful for charities with a large membership.
The Government has emphasised that the new power will only be available to those charities that do not have an existing amendment power in their Charter. Royal Charter charities with existing powers of amendment must continue to use these to make any changes to their governing documents, and to satisfy any conditions attaching to such power, which are likely to have been carefully framed to suit the charity.
Simplification of the parliamentary procedure for approving schemes that amend the governing documents of statutory charities
The Act provides that all schemes will pass using the negative procedure.
Guidance concerning the process by which both statutory and Royal Charter charities can amend their governing documents
For Royal Charter charities, the Privy Council Office already provided general guidance on its website regarding the process of petitioning for a Charter or seeking a Supplementary Charter. However, when the statutory power of amendment came into force, the Privy Council and the Charity Commission jointly produced new guidance, outlining the procedures involved for obtaining and amending Royal Charters. It covers some different situations – for example, dealing separately with unincorporated and corporate charities that wish to apply for Royal Charters. Nonetheless, it is felt that guidance can only give a fairly high-level overview, due to the varied circumstances of applicant organisations and that it would be disproportionate and could cause confusion to attempt to provide guidance that covered all eventualities. Instead, the Privy Council Office encourages applicants to get in touch directly to benefit from bespoke advice that will take into account their specific circumstances. In our experience, the Privy Council Office has a wealth of expertise and experience to offer and many charities successfully navigate relationships with the PCO without additional assistance. Where proposed amendments to Charters or other governing documents are complex, however, legal advice at an early stage can be helpful.
For statutory charities, DCMS will work with the Charity Commission on guidance regarding the process for making a scheme under section 73 of the Charities Act 2011. However, in a similar vein to the Privy Council Office, it is felt that it would be difficult and disproportionate to produce guidance on all the types of provision that should generally be subject to Parliamentary control, as each case presents its own issues and a bespoke approach is required.
It was clear, when the Charities Bill first appeared, that the Government did not think a 'one size fits all' approach would be helpful to charities governed by statute and Royal Charter. We agree that a conflation of the varied and complex regimes for these charities could lead to misinterpretation and thus undue expenditure of time and cost by trustees and others managing these charities. The helpful service offered by the Privy Council Office to Royal Charter charities, and its willingness to engage with them on a case by case basis will continue to be a helpful channel of support for these charities.
The significance of the addition of the new statutory power of amendment for some Royal Charter charities, and the development of new guidance for statutory charities, however, are not to be underestimated and we hope that these changes will be of help to trustees.
This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.
© Farrer & Co LLP, November 2022