What do you do with a charitable trust when experts say that the likelihood of it ever being possible to spend its funds is “vanishingly small”?
This was the question facing the court in the case of The National Fund (the Fund), a trust established in the 1920s, whose provisions require the trustees to hold the funds until they are large enough to pay off the national debt. The case came to court because several parties had an interest in deciding what to do with this apparently unusable money. Some descendants of the original donor argued that it was never a valid charity and that the Fund’s assets – a cool £512M – therefore belonged to them. Unhappily for them, the court held that it was a valid charity, but decided that the money should not go on languishing (and expanding) forever. Instead, the court would create what is known as a cy-près scheme to redirect the money to a different charitable aim.
Although the circumstances of the Fund’s case are probably unique, it is not that uncommon for charities – especially older ones – to find that their purposes are no longer suitable. In the case of unincorporated charities (trusts and unincorporated associations), it may be possible to apply to the Charity Commission, which, along with the court, has the power to make cy-près schemes. 
The courts and the Commission can only create a scheme if a charity’s purposes fall within one of the categories set out in section 62(1) of the Charities Act 2011. In the Fund’s case, the court determined that two of these categories applied, namely that the original purposes, in whole or in part:
- “cannot be carried out, or not according to the directions given and to the spirit of the gift” (section 62(1)(a)(ii)), and
- “have, since they were laid down…ceased…to provide a suitable and effective method of using the property available by virtue of the gift, regard being had to the appropriate considerations” (section.62(1)(e)(iii)).
The court has not yet decided how to redirect the Fund’s assets. To a degree, its hands are tied, in that section 67(3) of the Charities Act 2011 requires the court (or the Commission, where applicable), to consider the following matters before making a scheme:
- the spirit of the original gift,
- the desirability of securing that the property is applied for charitable purposes which are close to the original purposes, and
- the need for the charity to have purposes that are suitable and effective in the light of current social and economic circumstances.
The only suggestion put to the court was that the Fund be used to reduce the national debt, but the court preferred to hear other ideas before making a final decision. At some point, there will be another hearing, where the parties can propose alternatives.
If your charity is unincorporated and is being held back by its current purposes, the possibilities open to you will likely depend on your charity’s annual income:
- if your annual income is £10,000 or less, you may be able to change the purposes without a scheme, or
- if income is over that amount, then unless your governing document contains a power to change the purposes, you will need to apply to the Charity Commission for a scheme. You may want to take professional advice, but you can find more information about these options in the Commission’s guidance, Changing your charity’s governing document. Section 4 discusses the procedures involved in applying for a scheme.
This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.
© Farrer & Co LLP, December 2020
 Different procedures apply to charitable companies, CIOs, and Royal Charter bodies. The guidance referred to in the final paragraph of this article discusses the options for charitable companies.