The Charitable Incorporated Organisation : Update

by Caroline Redhead

The Office of the Third Sector and the Charity Commission have now published the Summary of Consultation Responses and Next Steps in relation to the Charitable Incorporated Organisation (the CIO) following last year’s consultation. This report describes the CIO as “one of the most widely and eagerly awaited provisions of the new Charities Act” and we are certainly seeing interest from charity clients in the potential benefits.

This note briefly summarizes the responses received to some of the questions posed and suggestions made in the consultation and the Government / Charity Commission decision in each case.

Minimum age for charity trustees

The proposal was that the appropriate minimum age for a charity trustee is 16. Although the Summary document indicates that there was a mixed response to this question, the decision is that 16 is an appropriate minimum age; a balance must be struck between encouraging young people to become involved in running charities and recognising that a certain amount of understanding and experience is required

The duty of care

This question considered the general duty of care imposed by existing charity legislation, asking whether it would be appropriate for a lesser duty to apply to CIO trustees. The Summary document reports that 85% of respondents thought this inappropriate and the decision reflects this. In order to promote confidence in the CIO model and high standards of administration, and in order not unduly to complicate the position of trustees across the spectrum of charities, a trustee of any charity will be subject to the same duty and care.

Trustee benefits and conflicts of interest

The consultation considered whether a charity trustee should automatically be prohibited from participating in a decision from which he or she may benefit personally unless either a conflict is extremely unlikely or he or she is authorised specifically by the Charity Commission to participate in the decision. The overwhelming majority of respondents (90%) felt a trustee should automatically be prohibited from participating in decisions where there is a possibility of any personal benefit. Guidance will be produced for CIOs by the Commission on identifying and managing conflicts of interest.

Registers of Trustees and Members

The question was whether the Companies Act model – which requires registers of directors and members to be maintained but has just changed to allow company directors to use a service address for the purposes of the register rather than their home address – is appropriate for CIOs.

The Commission’s view is that a register of members and a register of trustees is important, but that only a service address (which may be the CIO’s principal address) need be made public. The decision accepts that a criminal sanction for failing properly to keep the required registers is disproportionate but what might, instead, be more suitable remains to be proposed.

Ability of members to remove a charity trustee

The Commission’s view that it is not “good charity governance” for the members of a charity to have an automatic right to remove those responsible for its administration without good reason. However, it is accepted that some charities may wish to have the option to do so and the model CIO constitutions will reflect this.

Preventing the misuse of limited liability

This question looks at the sanctions available to be imposed on trustees who abuse their position as a charity trustee. Existing directors of charities incorporated as companies limited by guarantee may be disqualified from acting as company directors if they abuse their position and the decision is clear that, for the CIO to command external confidence, it is important that strong sanctions are available in the event that CIO trustees’ limited liability is misused. The company directors’ disqualification rules will therefore be applied to CIO trustees.

Model Constitutions

The draft model constitutions were broadly accepted by respondents to the consultation; the decision accepted that the constitutions need to be flexible to permit the CIO itself to maintain the flexibility the
Commission feels is necessary to reflect the diversity of the sector. The model constitutions are now under review in light of the responses received and revised drafts are expected to be available by the end of 2009.

What's next?

The draft regulations and constitutions will now be reviewed and amended. The regulations will need to be approved by Parliament and the Charity Commission needs to develop the guidance, systems and processes which are required for the CIO to become a reality. It is anticipated that the CIO provisions will begin to be implemented in the late spring of 2010. Further information and guidance is expected to be available later this year, to coincide with the publication of the revised regulations and model constitutions.

For further information on The Charities Act or to ensure you receive any further guidance we produce please contact Caroline Redhead on 01228 552222 or visit our charities pages.

Nov 2009