Charities Act 2006 (c. 50)

(The document as of February, 2008)

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(b) which he has reasonable cause to believe is likely to be relevant for the purposes of the exercise by the Commission of any of its functions,

he may make a report on the matter to the Commission.

(4) Where the duty or power under subsection (2) or (3) above has arisen in relation to a person acting in the capacity mentioned in subsection (1), the duty or power is not affected by his subsequently ceasing to act in that capacity.

(5) Where a person makes a report as required or authorised by subsection (2) or (3), no duty to which he is subject is to be regarded as contravened merely because of any information or opinion contained in the report.

(6) In this section "connected institution or body", in relation to a charity, means--

(a) an institution which is controlled by, or

(b) a body corporate in which a substantial interest is held by,

the charity or any one or more of the charity trustees acting in his or their capacity as such.

(7) Paragraphs 3 and 4 of Schedule 5 to this Act apply for the purposes of subsection (6) above as they apply for the purposes of provisions of that Schedule. "

(2) In section 46 of the 1993 Act (special provisions as respects accounts and annual reports of exempt and excepted charities)--

(a) in subsection (1) for "sections 41 to 45" substitute "sections 41 to 44 or section 45"; and

(b) after subsection (2) insert--

" (2A) Section 44A(2) to (7) above shall apply in relation to a person appointed to audit, or report on, the accounts of an exempt charity which is not a company as they apply in relation to a person such as is mentioned in section 44A(1).

(2B) But section 44A(2) to (7) so apply with the following modifications--

(a) any reference to a person acting in the capacity mentioned in section 44A(1) is to be read as a reference to his acting as a person appointed as mentioned in subsection (2A) above; and

(b) any reference to the Commission or to any of its functions is to be read as a reference to the charity's principal regulator or to any of that person's functions in relation to the charity as such. "

30 Group accounts

(1) After section 49 of the 1993 Act insert--

" 49A Group accounts

The provisions of Schedule 5A to this Act shall have effect with respect to--

(a) the preparation and auditing of accounts in respect of groups consisting of parent charities and their subsidiary undertakings (within the meaning of that Schedule), and

(b) other matters relating to such groups. "

(2) Schedule 6 (which inserts the new Schedule 5A into the 1993 Act) has effect.

Chapter 7 Charitable companies

31 Relaxation of restriction on altering memorandum etc. of charitable company

(1) Section 64 of the 1993 Act (alteration of objects clause etc.) is amended as follows.

(2) For subsection (2) substitute--

" (2) Where a charity is a company, any regulated alteration by the company--

(a) requires the prior written consent of the Commission, and

(b) is ineffective if such consent has not been obtained.

(2A) The following are "regulated alterations"--

(a) any alteration of the objects clause in the company's memorandum of association,

(b) any alteration of any provision of its memorandum or articles of association directing the application of property of the company on its dissolution, and

(c) any alteration of any provision of its memorandum or articles of association where the alteration would provide authorisation for any benefit to be obtained by directors or members of the company or persons connected with them.

(2B) For the purposes of subsection (2A) above--

(a) "benefit" means a direct or indirect benefit of any nature, except that it does not include any remuneration (within the meaning of section 73A below) whose receipt may be authorised under that section; and

(b) the same rules apply for determining whether a person is connected with a director or member of the company as apply, in accordance with section 73B(5) and (6) below, for determining whether a person is connected with a charity trustee for the purposes of section 73A. "

(3) In subsection (3) (documents required to be delivered to registrar of companies), for "any such alteration" substitute "a regulated alteration".

32 Annual audit or examination of accounts of charitable companies

(1) In section 249A(4) of the Companies Act 1985 (c. 6) (circumstances in which charitable company's accounts may be subject to an accountant's report instead of an audit)--

(a) in paragraph (b) (gross income between £90,000 and £250,000) for "£250,000" substitute "£500,000"; and

(b) in paragraph (c) (balance sheet total not more than £1.4 million) for "£1.4 million" substitute "£2.8 million".

(2) In section 249B(1C) of that Act (circumstances in which parent company or subsidiary not disqualified for exemption from auditing requirement), in paragraph (b) (group's aggregate turnover not more than £350,000 net or £420,000 gross in case of charity), for "£350,000 net (or £420,000 gross)" substitute "£700,000 net (or £840,000 gross)".

33 Duty of auditor etc. of charitable company to report matters to Commission

After section 68 of the 1993 Act insert--

" 68A Duty of charity's auditors etc. to report matters to Commission

(1) Section 44A(2) to (7) above shall apply in relation to a person acting as--

(a) an auditor of a charitable company appointed under Chapter 5 of Part 11 of the Companies Act 1985 (auditors), or

(b) a reporting accountant appointed by a charitable company for the purposes of section 249C of that Act (report required instead of audit),

as they apply in relation to a person such as is mentioned in section 44A(1).

(2) For this purpose any reference in section 44A to a person acting in the capacity mentioned in section 44A(1) is to be read as a reference to his acting in the capacity mentioned in subsection (1) of this section.

(3) In this section "charitable company" means a charity which is a company. "

Chapter 8 Charitable incorporated organisations

34 Charitable incorporated organisations

Schedule 7, which makes provision about charitable incorporated organisations, has effect.

Chapter 9 Charity trustees etc.

Waiver of disqualification

35 Waiver of trustee's disqualification

In section 72 of the 1993 Act (disqualification for being trustee of a charity) after subsection (4) insert--

" (4A) If--

(a) a person disqualified under subsection (1)(d) or (e) makes an application under subsection (4) above five years or more after the date on which his disqualification took effect, and

(b) the Commission is not prevented from granting the application by virtue of paragraphs (a) and (b) of subsection (4),

the Commission must grant the application unless satisfied that, by reason of any special circumstances, it should be refused. "

Remuneration of trustees etc.

36 Remuneration of trustees etc. providing services to charity

After section 73 of the 1993 Act insert--

" 73A Remuneration of trustees etc. providing services to charity

(1) This section applies to remuneration for services provided by a person to or on behalf of a charity where--

(a) he is a charity trustee or trustee for the charity, or

(b) he is connected with a charity trustee or trustee for the charity and the remuneration might result in that trustee obtaining any benefit.

This is subject to subsection (7) below.

(2) If conditions A to D are met in relation to remuneration within subsection (1), the person providing the services ("the relevant person") is entitled to receive the remuneration out of the funds of the charity.

(3) Condition A is that the amount or maximum amount of the remuneration--

(a) is set out in an agreement in writing between--

(i) the charity or its charity trustees (as the case may be), and

(ii) the relevant person,

under which the relevant person is to provide the services in question to or on behalf of the charity, and

(b) does not exceed what is reasonable in the circumstances for the provision by that person of the services in question.

(4) Condition B is that, before entering into that agreement, the charity trustees decided that they were satisfied that it would be in the best interests of the charity for the services to be provided by the relevant person to or on behalf of the charity for the amount or maximum amount of remuneration set out in the agreement.

(5) Condition C is that if immediately after the agreement is entered into there is, in the case of the charity, more than one person who is a charity trustee and is--

(a) a person in respect of whom an agreement within subsection (3) above is in force, or

(b) a person who is entitled to receive remuneration out of the funds of the charity otherwise than by virtue of such an agreement, or

the total number of them constitute a minority of the persons for the time being holding office as charity trustees of the charity.

(6) Condition D is that the trusts of the charity do not contain any express provision that prohibits the relevant person from receiving the remuneration.

(7) Nothing in this section applies to--

(a) any remuneration for services provided by a person in his capacity as a charity trustee or trustee for a charity or under a contract of employment, or

(b) any remuneration not within paragraph (a) which a person is entitled to receive out of the funds of a charity by virtue of any provision or order within subsection (8).

(8) The provisions or orders within this subsection are--

(a) any provision contained in the trusts of the charity,

(b) any order of the court or the Commission,

(9) Section 73B below applies for the purposes of this section.

73B Supplementary provisions for purposes of section 73A

(1) Before entering into an agreement within section 73A(3) the charity trustees must have regard to any guidance given by the Commission concerning the making of such agreements.

(2) The duty of care in section 1(1) of the Trustee Act 2000 applies to a charity trustee when making such a decision as is mentioned in section 73A(4).

(3) For the purposes of section 73A(5) an agreement within section 73A(3) is in force so long as any obligations under the agreement have not been fully discharged by a party to it.

(4) In section 73A--

"benefit" means a direct or indirect benefit of any nature;
"maximum amount", in relation to remuneration, means the maximum amount of the remuneration whether specified in or ascertainable under the terms of the agreement in question;
"remuneration" includes any benefit in kind (and "amount" accordingly includes monetary value);
"services", in the context of remuneration for services, includes goods that are supplied in connection with the provision of services.

(5) For the purposes of section 73A the following persons are "connected" with a charity trustee or trustee for a charity--

(a) a child, parent, grandchild, grandparent, brother or sister of the trustee;

(b) the spouse or civil partner of the trustee or of any person falling within paragraph (a);

(c) a person carrying on business in partnership with the trustee or with any person falling within paragraph (a) or (b);

(d) an institution which is controlled--

(i) by the trustee or by any person falling within paragraph (a), (b) or (c), or

(ii) by two or more persons falling within sub-paragraph (i), when taken together;

(e) a body corporate in which--

(i) the trustee or any connected person falling within any of paragraphs (a) to (c) has a substantial interest, or

(ii) two or more persons falling within sub-paragraph (i), when taken together, have a substantial interest.

(6) Paragraphs 2 to 4 of Schedule 5 to this Act apply for the purposes of subsection (5) above as they apply for the purposes of provisions of that Schedule. "

37 Disqualification of trustee receiving remuneration by virtue of section 36

After section 73B of the 1993 Act (inserted by section 36 above) insert--

" 73C Disqualification of trustee receiving remuneration under section 73A

(1) This section applies to any charity trustee or trustee for a charity--

(a) who is or would be entitled to remuneration under an agreement or proposed agreement within section 73A(3) above, or

(b) who is connected with a person who is or would be so entitled.

(2) The charity trustee or trustee for a charity is disqualified from acting as such in relation to any decision or other matter connected with the agreement.

(3) But any act done by such a person which he is disqualified from doing by virtue of subsection (2) above shall not be invalid by reason only of that disqualification.

(4) Where the Commission is satisfied--

(a) that a person ("the disqualified trustee") has done any act which he was disqualified from doing by virtue of subsection (2) above, and

(b) that the disqualified trustee or a person connected with him has received or is to receive from the charity any remuneration under the agreement in question,

it may make an order under subsection (5) or (6) below (as appropriate).

(5) An order under this subsection is one requiring the disqualified trustee--

(a) to reimburse to the charity the whole or part of the remuneration received as mentioned in subsection (4)(b) above;

(b) to the extent that the remuneration consists of a benefit in kind, to reimburse to the charity the whole or part of the monetary value (as determined by the Commission) of the benefit in kind.

(6) An order under this subsection is one directing that the disqualified trustee or (as the case may be) connected person is not to be paid the whole or part of the remuneration mentioned in subsection (4)(b) above.

(7) If the Commission makes an order under subsection (5) or (6) above, the disqualified trustee or (as the case may be) connected person accordingly ceases to have any entitlement under the agreement to so much of the remuneration (or its monetary value) as the order requires him to reimburse to the charity or (as the case may be) as it directs is not to be paid to him.

(8) Subsections (4) to (6) of section 73B above apply for the purposes of this section as they apply for the purposes of section 73A above. "

Liability of trustees etc.

38 Power of Commission to relieve trustees, auditors etc. from liability for breach of trust or duty

After section 73C of the 1993 Act (inserted by section 37 above) insert--

73D Power to relieve trustees, auditors etc. from liability for breach of trust or duty

(1) This section applies to a person who is or has been--

(a) a charity trustee or trustee for a charity,

(b) a person appointed to audit a charity's accounts (whether appointed under an enactment or otherwise), or

(c) an independent examiner, reporting accountant or other person appointed to examine or report on a charity's accounts (whether appointed under an enactment or otherwise).

(2) If the Commission considers--

(a) that a person to whom this section applies is or may be personally liable for a breach of trust or breach of duty committed in his capacity as a person within paragraph (a), (b) or (c) of subsection (1) above, but

(b) that he has acted honestly and reasonably and ought fairly to be excused for the breach of trust or duty,

the Commission may make an order relieving him wholly or partly from any such liability.

(3) An order under subsection (2) above may grant the relief on such terms as the Commission thinks fit.

(4) Subsection (2) does not apply in relation to any personal contractual liability of a charity trustee or trustee for a charity.

(5) For the purposes of this section and section 73E below--

(a) subsection (1)(b) above is to be read as including a reference to the Auditor General for Wales acting as auditor under section 43B above, and

(b) subsection (1)(c) above is to be read as including a reference to the Auditor General for Wales acting as examiner under that section;

and in subsection (1)(b) and (c) any reference to a charity's accounts is to be read as including any group accounts prepared by the charity trustees of a charity.

(6) This section does not affect the operation of--

(a) section 61 of the Trustee Act 1925 (power of court to grant relief to trustees),

(b) section 727 of the Companies Act 1985 (power of court to grant relief to officers or auditors of companies), or

73E Court's power to grant relief to apply to all auditors etc. of charities which are not companies

(1) Section 727 of the Companies Act 1985 (power of court to grant relief to officers or auditors of companies) shall have effect in relation to a person to whom this section applies as it has effect in relation to a person employed as an auditor by a company.

(2) This section applies to--

(a) a person acting in a capacity within section 73D(1)(b) or (c) above in a case where, apart from this section, section 727 would not apply in relation to him as a person so acting, and

(b) a charity trustee of a CIO."

39 Trustees' indemnity insurance

After section 73E of the 1993 Act (inserted by section 38 above) insert--

" 73F Trustees' indemnity insurance

(1) The charity trustees of a charity may arrange for the purchase, out of the funds of the charity, of insurance designed to indemnify the charity trustees or any trustees for the charity against any personal liability in respect of--

(a) any breach of trust or breach of duty committed by them in their capacity as charity trustees or trustees for the charity, or

(b) any negligence, default, breach of duty or breach of trust committed by them in their capacity as directors or officers of the charity (if it is a body corporate) or of any body corporate carrying on any activities on behalf of the charity.

(2) The terms of such insurance must, however, be so framed as to exclude the provision of any indemnity for a person in respect of--

(a) any liability incurred by him to pay--

(i) a fine imposed in criminal proceedings, or

(ii) a sum payable to a regulatory authority by way of a penalty in respect of non-compliance with any requirement of a regulatory nature (however arising);

(b) any liability incurred by him in defending any criminal proceedings in which he is convicted of an offence arising out of any fraud or dishonesty, or wilful or reckless misconduct, by him; or

(c) any liability incurred by him to the charity that arises out of any conduct which he knew (or must reasonably be assumed to have known) was not in the interests of the charity or in the case of which he did not care whether it was in the best interests of the charity or not.

(3) For the purposes of subsection (2)(b) above--

(a) the reference to any such conviction is a reference to one that has become final;

(b) a conviction becomes final--

(i) if not appealed against, at the end of the period for bringing an appeal, or

(ii) if appealed against, at the time when the appeal (or any further appeal) is disposed of; and

(i) if it is determined and the period for bringing any further appeal has ended, or

(ii) if it is abandoned or otherwise ceases to have effect.

(4) The charity trustees of a charity may not purchase insurance under this section unless they decide that they are satisfied that it is in the best interests of the charity for them to do so.

(5) The duty of care in section 1(1) of the Trustee Act 2000 applies to a charity trustee when making such a decision.

(6) The Minister may by order make such amendments of subsections (2) and (3) above as he considers appropriate.

(7) No order may be made under subsection (6) above unless a draft of the order has been laid before and approved by a resolution of each House of Parliament.

(8) This section--

(a) does not authorise the purchase of any insurance whose purchase is expressly prohibited by the trusts of the charity, but

(b) has effect despite any provision prohibiting the charity trustees or trustees for the charity receiving any personal benefit out of the funds of the charity. "

Chapter 10 Powers of unincorporated charities

40 Power to transfer all property

For section 74 of the 1993 Act substitute--

" 74 Power to transfer all property of unincorporated charity

(1) This section applies to a charity if--

(a) its gross income in its last financial year did not exceed £10,000,

(b) it does not hold any designated land, and

"Designated land" means land held on trusts which stipulate that it is to be used for the purposes, or any particular purposes, of the charity.

(2) The charity trustees of such a charity may resolve for the purposes of this section--

(a) that all the property of the charity should be transferred to another charity specified in the resolution, or

(b) that all the property of the charity should be transferred to two or more charities specified in the resolution in accordance with such division of the property between them as is so specified.

(3) Any charity so specified may be either a registered charity or a charity which is not required to be registered.

(4) But the charity trustees of a charity ("the transferor charity") do not have power to pass a resolution under subsection (2) above unless they are satisfied--

(a) that it is expedient in the interests of furthering the purposes for which the property is held by the transferor charity for the property to be transferred in accordance with the resolution, and

(b) that the purposes (or any of the purposes) of any charity to which property is to be transferred under the resolution are substantially similar to the purposes (or any of the purposes) of the transferor charity.

(5) Any resolution under subsection (2) above must be passed by a majority of not less than two-thirds of the charity trustees who vote on the resolution.

(6) Where charity trustees have passed a resolution under subsection (2), they must send a copy of it to the Commission, together with a statement of their reasons for passing it.

(7) Having received the copy of the resolution, the Commission--

(a) may direct the charity trustees to give public notice of the resolution in such manner as is specified in the direction, and

(b) if it gives such a direction, must take into account any representations made to it by persons appearing to it to be interested in the charity, where those representations are made to it within the period of 28 days beginning with the date when public notice of the resolution is given by the charity trustees.

(8) The Commission may also direct the charity trustees to provide the Commission with additional information or explanations relating to--

(a) the circumstances in and by reference to which they have decided to act under this section, or

(b) their compliance with any obligation imposed on them by or under this section in connection with the resolution.

(9) Subject to the provisions of section 74A below, a resolution under subsection (2) above takes effect at the end of the period of 60 days beginning with the date on which the copy of it was received by the Commission.

(10) Where such a resolution has taken effect, the charity trustees must arrange for all the property of the transferor charity to be transferred in accordance with the resolution, and on terms that any property so transferred--

(a) is to be held by the charity to which it is transferred ("the transferee charity") in accordance with subsection (11) below, but

(b) when so held is nevertheless to be subject to any restrictions on expenditure to which it was subject as property of the transferor charity;

and the charity trustees must arrange for the property to be so transferred by such date after the resolution takes effect as they agree with the charity trustees of the transferee charity or charities concerned.

(11) The charity trustees of any charity to which property is transferred under this section must secure, so far as is reasonably practicable, that the property is applied for such of its purposes as are substantially similar to those of the transferor charity.

But this requirement does not apply if those charity trustees consider that complying with it would not result in a suitable and effective method of applying the property.

(12) For the purpose of enabling any property to be transferred to a charity under this section, the Commission may, at the request of the charity trustees of that charity, make orders vesting any property of the transferor charity--

(a) in the transferee charity, in its charity trustees or in any trustee for that charity, or

(b) in any other person nominated by those charity trustees to hold property in trust for that charity.

(13) The Minister may by order amend subsection (1) above by substituting a different sum for the sum for the time being specified there.

(14) In this section references to the transfer of property to a charity are references to its transfer--

(a) to the charity, or

(b) to the charity trustees, or

(d) to a person nominated by the charity trustees to hold it in trust for the charity,

as the charity trustees may determine.

(15) Where a charity has a permanent endowment, this section has effect in accordance with section 74B.

74A Resolution not to take effect or to take effect at later date

(1) This section deals with circumstances in which a resolution under section 74(2) above either--

(a) does not take effect under section 74(9) above, or

(b) takes effect at a time later than that mentioned in section 74(9).

(2) A resolution does not take effect under section 74(9) above if before the end of--

(a) the period of 60 days mentioned in section 74(9) ("the 60-day period"), or

(b) that period as modified by subsection (3) or (4) below,

the Commission notifies the charity trustees in writing that it objects to the resolution, either on procedural grounds or on the merits of the proposals contained in the resolution.

"On procedural grounds" means on the grounds that any obligation imposed on the charity trustees by or under section 74 above has not been complied with in connection with the resolution.

(3) If under section 74(7) above the Commission directs the charity trustees to give public notice of a resolution, the running of the 60-day period is suspended by virtue of this subsection--

(a) as from the date on which the direction is given to the charity trustees, and

(b) until the end of the period of 42 days beginning with the date on which public notice of the resolution is given by the charity trustees.

(4) If under section 74(8) above the Commission directs the charity trustees to provide any information or explanations, the running of the 60-day period is suspended by virtue of this subsection--

(a) as from the date on which the direction is given to the charity trustees, and

(b) until the date on which the information or explanations is or are provided to the Commission.

(5) Subsection (6) below applies once the period of time, or the total period of time, during which the 60-day period is suspended by virtue of either or both of subsections (3) and (4) above exceeds 120 days.

(6) At that point the resolution (if not previously objected to by the Commission) is to be treated as if it had never been passed.

74B Transfer where charity has permanent endowment

(1) This section provides for the operation of section 74 above where a charity within section 74(1) has a permanent endowment (whether or not the charity's trusts contain provision for the termination of the charity).

(2) In such a case section 74 applies as follows--

(a) if the charity has both a permanent endowment and other property ("unrestricted property")--

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