The Scottish Government

Scottish Charitable Incorporated Organisations (SCIOs) Working Group

Sub-group Meeting - SCIO Constitutions

Friday 5 December, 14.00 - 16.00

OSCR Offices, Dundee

Present:

Quentin Fisher, OSCR (chair)

Maggie Wilkins, OSCR

Steve Kent, EVOC

Adrienne Airlie, ICAS

Anita Popplestone, SG (secretariat)

Stephen Phillips, LSS

Stuart Cross, University of Dundee

Introductions & aims

1. The Chair proposed and it was agreed that the aim of the meeting was to review existing model SCIO documents and identify those aspects which would be mandatory, optional or unnecessary. The Chair invited Stephen Philips to talk the sub-group through the original SCIO model constitutions, which he developed during the passage of the Scottish Charities Bill and, in comparison with the model CIO constitutions, would review which aspects should be deemed essential, desirable or no longer required.

2. Before the substantive business of the meeting, Stuart Cross indicated that, as a member of a Charity Law Association (CLA) working party, he had been involved in preparing a response to the Office of the Third Sector's Charitable Incorporated Organisation (CIO) consultation. He anticipated that the final CLA submission would be fairly lengthy and hoped to be in a position to share it with the Working Group in due course.

3. Before proceeding to look in detail at specific constitutional clauses, it was agreed that if any issues arose which merited more discussion, they would be referred back to the main Working Group. Underlying the detailed discussion were the broader questions relating to the extent to which constitutional requirements were specified in Regulations. It was suggested that the model constitutions might themselves be set out, perhaps in schedules to the Regulations, but there was also a plea that they be drafted to be comprehensible by lay trustees and, hence, not overly long or requiring to be cross referenced with numerous other documents.

4. Other broader issues, worthy of further consideration included:

• The need to be mindful of the potential impact of future changes to legislation if constitutions are tied into Regulations.
• How to strike the balance between creating an attractive form with user-friendly documents, catering for a range of scenarios, without going into excessive detail on every conceivable variation.
• Allowing complete freedom in constitutional design would place additional burden on the Regulator, requiring as it would consideration of provisions in the constitution relating to structure and governance as well as the charity test. This would also increase the range of grounds upon which an individual applications might be rejected.
• Caution against an over-reliance on OSCR's powers of intervention when discarding some of the detailed requirements under company law regarding internal governance -the Regulator does not have either the function or resource to micromanage internal disputes in charities. It can only intervene where charitable assets are at risk or there has been misconduct and then only if it is proportionate to do so.
• The merit of providing approved optional text instead of or along with permitting freely drafted text. The motivation for this would be to permit particularly smaller charities to take a structural approach without the need to involve external advisors. On the other hand doing so could be seen as creating undue complexity.

Substantive discussion - Model SCIOs constitutions - (Stephen Phillips)

5. On Stephen Phillips' suggestion, the sub-group agreed to review the two-tier model constitution, as most items would also be applicable to the one-tier model. The original draft two-tier model constitution is attached to these minutes at Annex A for ease of reference. Discussion followed the numbered clauses in the model constitution and is summarised below:

• Clauses 1-3 (type of organisation, principal office and name) - there was no need to change these clauses which should be mandatory
• Clause 4 (purposes) - this is required under section 50(1). There was some discussion as to whether the terminology should be changed to reflect company legislation, referring to "objects" as opposed to "purposes" but the general consensus was that the terminology should be consistent with charity law.
• Clause 5 (powers) - it was noted that banks and lenders often looked for specific articulation of powers to borrow, for example, but the sub-group was minded to advise that model constitutions refer only to an over-arching power, effectively a restatement of section 50(5) of the Act, to cover all eventualities, as over-specification implied a lack of specific powers in areas not listed. Action: The sub-group considered that this was an issue on which the views of representatives of the banking and funding sectors should be sought. It was also agreed that clause 83 should be subsumed under clause 5.
• Clauses 6 & 7 (liability)- although clause 7 amounted to little more than clarification, it was thought necessary, albeit that it could be broadened. As currently drafted, the clause did not address wrongful trading or potential breach brought about through adherence to other legal obligations. Accompanying guidance might help to clarify further.

Clauses 1-7 were considered mandatory

• Clause 8 (structure) - provided useful explanation. The question of whether charity trusteeship should be limited to individuals or natural persons, as opposed to corporate bodies was considered. Were it so restricted, it might act as a disincentive to some existing charities with corporate charity trustees who would otherwise convert to SCIO form. The subgroup agreed that this question should be referred to the Working Group. Action: Working Group to consider whether charity trusteeship should be limited to natural persons.
• Clause 10 (qualification for membership) - it was agreed that this needed to be flexible to allow for variation but that the Regulations should require that the eligibility criteria be set out clearly in the constitution. While the requirement under clause 7(1) of the draft CIO Association model to list original/founding members was considered unnecessary, the qualification requirements should be transparent. It was agreed that no default clause should be included. It was considered essential that this clause refer to corporate members where applicable but this could be added as a note. Other clauses might also need to be amended to reflect this.
• Clause 11 (employees not entitled to membership) - this restriction could also affect the eligibility for charity trusteeship if charity trustees had to be members. Section 67 of the Act allows for the remuneration of some charity trustees. If this clause were deemed to be optional and membership was opened to employees there would need to be some reference to the restricted rights of employee members. Action: Working Group to consider whether to allow employees to be members.
• Clauses 12 - 14 (Application for membership) While the Act requires constitutions to include some provision on this, the substance of such clauses should be optional.
• Clause 15 (membership subscription) - this would be optional and need not be specified in Regulations.
• Clause 16 (register of members) - given that the Act provided that Ministers could make Regulations for this under section 64, it was assumed (without specific discussion) that such provision would be made. A question was raised later about the feasibility of a register of past members but it was suggested that this could be dealt with under record-keeping requirements.
• Clauses 17 & 18 (withdrawal and expulsion from membership) - for reasons of transparency and simplicity it was considered essential that such clauses were included. However, there was extensive discussion on what these might mean in practice, and strayed into members' rights and powers to remove trustees. Action: Working Group to consider whether to allow members to have powers to remove trustees. In terms of removal of members, it was necessary to distinguish between two possible types of removal:

o Sleeping members - this was primarily an issue of good housekeeping, to remove non-active members. It was agreed that a simple renewal mechanism was required, (removing those who failed to renew membership, which was preferable to using non-payment or non-attendance as criteria for removal) to be managed by the trustees.

o Vexatious members - the means by which this would be determined and dealt with were matters for debate but it was vital that the constitution contained provisions addressing this.

Minimum Procedural Requirements

There followed a wide-ranging discussion on the necessity of spelling out procedural requirements. Were these issues which were appropriate for the Regulations or should they be dealt with in the constitutions? The consensus was that the Regulations should require that the SCIO's constitution must state its procedural requirements but not dictate what those would be.

• Clauses 19 - 23 (Members' meetings) - It was agreed the term "Annual Members' Meeting" be used instead of the usual reference to AGM. Clauses 20 and 21 were drawn from company law but were considered useful.

• Clauses 24 - 28 (meetings) - no change was considered necessary. The question of whether members should have rights to requisition a meeting was discussed. The inclusion of such a right might persuade those in favour of powers for members to remove trustees to forgo this if the power to requisition meetings was included instead. The minimum number of members required to requisition a meeting could be determined as a percentage, say 5%, or a fixed number. It was noted that under company law, directors could refuse such a requisition if it was deemed not to be competent business.
• Clause 29 (procedures at meetings) - it should be mandatory that the constitution include provision for a quorum but optional as to what that number should be.
• Clauses 31-33 (procedures at meetings) - These clauses were considered uncontroversial. The term "chair" was not thought necessary, as long as the constitution specified whether there was a presiding officer.
• Clause 37 (secret ballot) - the term "poll" was used in company law but it was not thought necessary to align the terms.
• Clauses 33-37 (voting) -were considered optional, although it would be mandatory to have some provision for this within the constitution. The question remained as to whether some sort of baseline be prescribed.
• Clauses 38-39 (minutes) - would be mandatory, specified in Regulations.

Board and charity trustees

• Clauses 40-41 (number of charity trustees) - It would be mandatory that the maximum and minimum number of charity trustees be specified in the constitution although the exact figures would be at the charity's discretion. However, the minimum would not be less than 3.
• Clause 42 (eligibility for charity trusteeship) - It was questioned whether it was necessary to require that charity trustees be members. There can be limited capacity in smaller community charities with a limited pool of potential charity trustees. There were further provisions allowing for the co-opting of non-member charity trustees which might address this issue. It was agreed that this question be referred back to the Working Group. Action: Working Group to consider eligibility for charity trusteeship.
• Clause 45 (retirement of charity trustees) - there was discussion as to whether it was necessary to require all charity trustees to retire at annual meetings. Some retirement mechanism was considered necessary and to start introducing percentages of charity trustees who would need to retire might over-complicate matters. Enforced retirement was not considered as important as the need to encourage new charity trustees to be elected. The default mechanism could be that if no new charity trustees were elected the old charity trustees were deemed to remain in office to avoid the potential for a complete absence of charity trustees.
• Clause 46 (termination of office) - an additional reference to disqualification due to breach of duties would be required. Sub-clause (f) should be re-phrased as Boards would not be likely to give permission for absenteeism; it should make clear that this referred to absenteeism without good reason.
• Clause 47 (register of charity trustees) - this should be a mandatory requirement specified in Regulations.
• Clauses 48 -51 (office bearers) - these were considered optional clauses..
• Clause 52 -53(powers of the board) - these should be a mandatory clauses. They may need to be expanded to allow for delegation of powers.
• Clauses 54-58 (personal interest) - these clauses should be redrafted to reflect sections 66-67 of the Act.
• Clauses 59-70 (Board meetings) - It was agreed that the Regulations should provide that the constitution must set out the procedural requirements for Board meetings but not specify the content of those requirements.

• Clauses 71-72 (minutes) - these should be mandatory requirements but there remained questions as to how public the minutes should be. There was also the question of the sanction to be attached to these requirements. It was agreed that the question of accessibility should be referred back to the Working Group. Action: Working Group to consider what right of public access should be granted to the minutes of board meetings.
• Clauses 73 -77 (Delegation) - It was agreed that while delegation should be optional, the Regulations should require that if a delegation is to be allowed, then mandatory provision should be set out in constitutions.
• Clauses 78-79 (operation of accounts) - these clauses should be optional.
• Clauses 80-81 (annual accounts) - these clauses should be mandatory and tie in with existing requirements under the 2005 Act and the 2006 Regulations.
• Clause 82 (winding-up) - it was noted that the references to winding up should be expanded to include "dissolution"
• Clauses 84-85 (amendment of constitution) - There was some discussion as to whether these clauses were necessary and, if so, should they be relocated to earlier sections?

Final documents

6. In conclusion, it was agreed that the final documents should spell out mandatory clauses: some which were required to follow precise wording and others which allowed for a degree of flexible drafting. In addition, there would be a number of optional elements for free drafting. The Regulations should stipulate the mandatory requirements. Guidance and sign-posting would be critical.

Action: It was agreed that (a) Stephen Philips would amend the two-tier model constitution to reflect the discussion and that (b) Quentin Fisher would do a short note cross referencing Regulation 38 of the proposed General CIO Regulations to comparable clauses in the draft SCIO constitutions.

Summary of action points

(Those highlighted with a * are points referred back to the main Working Group for further discussion.)

• Action 1: The sub-group considered that this was an issue on which the views of representatives of the banking and funding sectors should be sought.

• Action 2: Working Group to consider whether trusteeship should be limited to natural persons.*

• Action 3: Working Group to consider whether to allow employees to be members.

• Action 4: Working Group to consider whether to allow members to have powers to remove trustees.*

• Action 5: Working Group to consider eligibility for trusteeship.*

• Action 6: Working Group to consider what right of public access should be granted to the minutes of board meetings.*

• Action 7: It was agreed that:

o (a) Stephen Philips would amend the two-tier model constitution to reflect the discussion; and that

o (b) Quentin Fisher would annotate Regulation 38 of the General CIO Regulations to reflect comparable SCIO provisions.

ANNEX A

http://www.scotland.gov.uk/Topics/People/15300/charities/22383