Redundant charities can be a wellspring for local good causes

Published on Wednesday 16 September 2009 19:56

CONTRARY to the national stereotype, Scotland has a long-standing and proud tradition of charitable giving and philanthropy – a trait that continues to this day, with people giving generously to causes, backed by more than 23,000 registered charities.

Over the years, responsibility for some of our longest-standing charitable trusts has passed to Scotland's local authorities, which continue to fund good works on their behalf. But society does not stand still and, as some of these organisations have fallen into disuse, the reported 2 million being generated every year by their funds has simply had nowhere to go.

A possible solution to this problem was introduced in 2005, with the passing of the Charities and Trustee Investment (Scotland) Act, intended to strengthen public confidence in the charitable sector and provide a more relevant legal and regulatory framework. One aspect of this allows inactive charities, including those administered by local authorities, to "reorganise" so their charitable purposes and funds can be used effectively once again.

Charities can become inactive if their original purposes have been fulfilled, through changing social and economic circumstances, to provide a better use of charitable funds, or if their purposes cease to exist or to be charitable. The ability to reorganise may be of great use to charities whose constitutions do not already provide powers to make such changes.

An application for reorganisation to the Office of the Scottish Charity Regulator (OSCR) could seek approval to amend defunct charitable objectives, or consent to transfer assets to another charity. The public is automatically notified of any proposed change as part of the application process.

The OSCR procedure offers a flexible and simple solution, unlike the system it replaced, which either made changes impossible or necessitated a complex court process.

However, it does not mean charitable assets are completely safe. OSCR carefully reviews submissions against the terms of the act, paying attention to the need to respect the original charitable purposes.

The legislation requires OSCR to consider whether the proposed reorganisation would allow resources to be better applied, in a manner consistent with the spirit of the charity's constitution. While the regulator will weigh up social and economic changes, this does not provide carte blanche to use the charity's funds for an entirely unrelated purpose.

A successful reorganisation can deliver significant benefits for charities and communities. Governance costs can be reduced, or extinguished, if assets are transferred to another appropriate body, allowing more funds to be applied for charitable purposes.

For communities, a reorganisation can lead to assets being unlocked and used more effectively. Local authorities charged with administering charitable trust funds also benefit. As well as freeing up dormant funds, the procedure provides an opportunity to identify experienced recipient charities that would be better placed to make effective use of the funds. Again, the administration costs borne by the charitable funds and even the public purse can be addressed through the new procedure. It should be noted that funds administered by local authorities are not public funds as such.

For organisations such as local authorities, which administer a number of independently registered charities, a "multiple reorganisation" may be the most appropriate way of reinvigorating inactive assets.

While it does not provide any shortcut to OSCR assessment, tackling several redundant charities at once can help authorities identify the changes needed, or which charities will make the best recipients for a transfer of assets.

The 2005 act provided a new dawn in charity law and regulation. For those who administer apparently inactive charitable funds, a well-considered application to reorganise should be a key issue. That is especially so for those with a number of such charities under their charge. Reorganisation could lead to charitable intentions being brought to life again, costs being reduced and benefit being secured for communities.

&#149 Alan Eccles is an associate in the charities unit at Maclay Murray & Spens LLP.