This article is one of a series of articles focusing on some of the more technical changes envisaged by the Charities Bill, which was published on 26 May 2021. 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 proposed by the Bill 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 new Charities Bill will grant 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.
- 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 current position
Many view the procedure for altering the governing documents of charities established by statute and Royal Charter as unnecessarily cumbersome. Others are defenders of what they see 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 can be time consuming and costly. Understandably, this often has discouraged those managing these charities from making constitutional changes. The result has been charities with outdated and often impractical procedures: making a change to allow accounts to be sent to members by email rather than post, or amending the date of an annual general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, requires the involvement of numerous parties and a complex, multi-stage application process. For many, the shortcomings of the regime have been even more evident in recent months 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 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 and (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 is 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 for statutory charities to amend their statutes and Royal Charter charities to amend their Charters, which will usually need to obtain an Act of Parliament (for statutory charities) or a Supplemental Charter or Order in Council (for Royal Charter charities). A Charity Commission Scheme can only be used to amend a Royal Charter where the Charter itself contains a power to this effect.
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 existing regime falls into four broad categories:
1. An unnecessarily complex, slow and costly process
The process is overly complex. This occupies staff time within charities and often leads 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 contain an express power of amendment, it is not uncommon for the process to take up to a year, once all the various parties have been consulted. For statutory charities the process can take several years.
It is felt that it is 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 is 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 feel that this involvement should be reserved to situations where the expertise and regulatory function would be more valuable.
3. A lack of transparency
Critics feel that the process is unclear and opaque, particularly in terms of process and timeline. This has led to charities being discouraged from making (often much needed) amendments to their governing documents.
The regime is applied differently depending on the structure of a charity’s governing document and the presence of express powers of amendment.
What is changing under the Bill?
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 Bill 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.
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.
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 provides general guidance on its website regarding the process of petitioning for a Charter or seeking a Supplementary Charter. It is felt that this can only give a 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 is clear from the Bill that the Government is mindful that a 'one size fits all' approach will not 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 as they look forward to address the impact of the pandemic.
 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). If the statute establishing the charity is a public general Act, the order must be approved by a resolution of both Houses of Parliament (“the affirmative procedure”). If it is a private Act, the order must be laid before both Houses of Parliament and is subject to annulment by a resolution of either House (“the negative procedure”). Most orders under section 73 follow the negative procedure.
This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.
© Farrer & Co LLP, June 2021