The Scottish Government

SCOTTISH CHARITABLE INCORPORATED ORGANISATIONS (SCIOS) WORKING GROUP - MEETING 3 - Monday 15 December 2008, Offices of the Scottish Council for Voluntary Organisations (SCVO), Mansfield Traquair Centre, Edinburgh

Present:

Richard Dennis (Chair), Scottish Government

Marieke Dwarshuis, Office of the Scottish Charity Regulator (OSCR)

Ken Butler, Scottish Drugs Forum

Quentin Fisher, Office of the Scottish Charity Regulator

Steve Kent, Edinburgh Voluntary Organisations Council

Patrick Ford, University of Dundee

Stuart Cross, University of Dundee,

Stephen Phillips, Burness

Nancy Fancott, Scottish Council of Voluntary Organisations

Adrienne Airlie, Martin Aitken & Co

Stuart Morrison, Scottish Government

Anita Popplestone, Scottish Government

Item 1 - Welcome and apologies

1. The Chair thanked Nancy Fancott and SCVO for hosting the meeting. Apologies were noted from Alex McDougall, David Brownlee, Susan Deighan and Gavin McEwan.

Item 2 - Minutes of 2nd meeting

2. The minutes of the second meeting, which took place on Monday 27th October 2008 in Victoria Quay, Edinburgh, were approved as revised.

3. Most of the action points from the previous meeting would picked up in later agenda items but the Chair noted that, in relation to the first action point concerning original Bill instructions for the minimum member requirement, initial investigations suggested that this was introduced following the Bill consultation, although the precise reasons were still being looked into.

Item 4 - SCIOs Research Project - Minutes from first focus group meeting, 4 December 2008 (paper 3)

4. To allow full discussion of the subgroup findings, the Chair suggested a slight re-ordering of the agenda, taking item 4 before item 3. The Working Group was invited to note the minutes but it was explained that full feedback and discussion would be provided at a future meeting to allow for consideration of the outcome of all three focus groups together, thereby allowing for an overview of the different perspectives. The remaining two focus groups would be meeting on 18 December at the offices of the Edinburgh Voluntary Organisations Council (EVOC) and in mid January at the offices of the Scottish Drugs Forum (SDF). Arrangements for the latter were still being finalised.

5. Although mindful of the planned future discussion of all three focus groups, a couple of observations were made on the minutes of the first one. Clarification was sought on what was meant by "better links between Companies House, HMRC and OSCR may ease some of the issues associated with dual registration". It was noted that some of those participating the focus group had agreed to provide further feedback if required and it was agreed that further elaboration of this point would be sought from those who attended. In addition, it was recognised that the first focus group reflected the concerns of one particular perspective and it would be necessary to consider the questions raised once feedback from all the focus groups had been collated.

Item 3 - Subgroup Meeting - Constitutions - 5 December, OSCR offices, Dundee

6. The Chair of the Sub-group reported the meeting had been very constructive. The approach taken was to work through the model constitutions that had been prepared at the time of the Bill by Stephen Phillips, and identify which elements should remain and, of those, which should be mandatory and which should be optional.

7. Discussion then centred on the main areas which the sub-group had identified for further consideration by the Working group:

• Charity trustees powers to borrow - while the Sub-group favoured the inclusion of a general power over listing specific powers, it was recognised that some lenders preferred to see an explicit reference to the power to borrow. This was a question to be explored with banks and lenders. Action: put questions of constitutional powers to lenders.
• Should charity trusteeship of a SCIO be limited to 'natural persons'? It was noted that many charities have trustees which are corporate bodies. This could create difficulties when trying to identify individuals who could be liable and hence open to prosecution or when enquiring as to whether any of the directors or trustees of said body had been disqualified. However, the question was posed as to why the conditions for SCIO trusteeship should be any different from those of any other charity; to introduce such restrictions would create an anomaly. If one was to impose different governance standards for a SCIO than for other charities, this may inculcate best practice but it would also create a differential and could impact on the attractiveness of the model. The Working Group identified this as an issue for consultation, perhaps to be looked at in conjunction with the question of whether corporate bodies could be members of a SCIO. It was noted that as this was allowed for under the primary legislation, any move to restrict trusteeship to exclude corporate entities would need to be clear as to the policy and legal basis for doing so. Action: raise question of whether corporate bodies could be trustees and/or members of a SCIO in consultation.
• Should membership of a SCIO be open to employees? Section 67 of the 2005 Act allows remuneration of up to 50% of trustees subject to certain conditions, so by implication charity trustees can be employees of the charity. However, if SCIO trusteeship were limited to members, then a restriction on membership to non-employees would also apply to trustees, unless they were co-opted. Among the reasons for excluding employees from membership would be to avoid potential conflicts of interest such as might occur when voting rights are exercised to influence employee remuneration or the composition of trustee boards. It was noted that some charities actively encouraged their employees to become members and that to place such a restriction on membership of a SCIO would discourage such charities from converting to the new form. It was also observed that the conditions laid down in section 67 on trustee remuneration were intended to prevent employees exerting undue influence. The Group agreed to put the question to consultation. Action: raise question of whether membership of a SCIO should be open to employees in consultation.
• Should SCIO members have powers to remove SCIO trustees? This question linked into the broader issue of members' rights, around requisitioning meetings and electing trustees. The more rights members were afforded, the greater disclosure requirements tended to follow, particularly the information required to be publicly available in a register of members. If a member wished to requisition a meeting, they would need to know who to contact and how many. There was some discussion on the maintenance of, and access to, a members' register and OSCR's role. It was recognised that if a register of SCIO members was to be published this could act as a strong disincentive to membership organisations which may be considering the SCIO form. Inferences could be drawn from a SCIO members' register, say in the cases of those charities dealing with sensitive health issues, that could severely impact on that organisation's duty of care to its members and there were instances where to grant public access would breach confidentiality obligations. There was some discussion on the powers of members to remove trustees. In general, it was thought that annual election of trustees should suffice as a means of removal. However, in the case of gross misconduct there might be a more pressing need to remove a trustee that could not await an annual meeting. A way forward might be to invite the charities to consider for themselves the powers and rights that their members should have. The Regulations should, in this sense, be permissive in not preventing SCIOs from including members' powers in their constitutions. It was agreed that useful models might be found internationally. Action: look for international models for addressing members' rights and powers in third sector/charitable organisations
• Should there be a public right of access to minutes of meetings, etc? This question related to the earlier point concerning public access to the register of members. While the principle of transparency was welcomed, there were questions as to how useful the documents would be if they were to become so sanitised as to be rendered meaningless. One option would be to restrict access to members but the same questions would emerge. As the third sector comes to be subject to freedom of information legislation if organisations providing public services are brought within its remit, the trend towards greater openness could be taken up here. However, it was agreed that this should be an issue for the SCIOs to decide for themselves. Action: model constitutions should allow publication of minutes of proceedings to be optional.
• Eligibility for SCIO trusteeship - As currently drafted the model constitution allows for the co-opting of trustees who are not members. This would permit the SCIO to buy in particular expertise, in finance say. Some may question whether this would invite in those who did not buy in to the ethos of the charity or encourage cronyism but in practice it is already fairly commonplace and allows those who may not qualify for membership to bring in their knowledge and experience to the Board.

8. The Sub-group did not intend to meet again but some tweaking and redrafting of the constitutions would continue and an annotated version of regulation 38 of the CIO General Regulations would be circulated to reflect the agreed position in relation to the SCIO constitutions. It was hoped that what would ultimately emerge would be a matrix comprising draft constitutions, Regulations and guidance which would interleave in such a way that the user of the SCIO was clear as to how the parts fitted together and applied to the organisation. Action: redrafted model constitutions and annotated version of Regulation 38 (CIO General Regulations) be circulated.

9. The Working Group, conscious of the need to identify issues for consultation and recommendations for Ministers, returned to the question of the degree of constitutional flexibility. It was agreed that the issue of whether optional clauses be included with a mandatory baseline should be put to consultation: it would allow for a choice of add-ons but could make for a long complicated template. It was recognised that the more mandatory and rigid the constitution, the greater certainty and confidence for third parties but, also, the less attractive to potential users. There was no desire to follow a "Table A as amended" approach for SCIOs. The preferred way forward might be to set out a minimum acceptable baseline upon which could be built additional complexity and sophistication for the larger organisations but without spelling out all the options in the model document, which would only serve to confuse the smaller organisations. So the model constitution would not contain the 400 or more possible clauses but would be sufficiently flexible to allow for the additional clauses where necessary. Action: raise question of whether optional clauses should be included with a mandatory constitutional baseline in consultation.

Item 5 - Feedback from Charitable Incorporated Organisation (CIO) Consultation

10. The Chair confirmed that a very useful discussion with colleagues in the Office of the Third Sector had taken place. Initial feedback from the CIO consultation, which closed on 10 December, suggested that overall there was a positive reception for the proposed new form. Responses varied in length and focus but some common themes had emerged and would provide the focus for future development of the provisions. Following analysis of the responses received, a consultation report would be prepared which would also outline the next steps. This was expected later in the spring, so the Chair proposed that the Group reflect on the CIO development at its meeting in March, to which the Office of the Third Sector and/or the Charity Commission be invited to address the meeting. Action: include further consideration of CIO developments in agenda for Working Group meeting in March and invite Office of Third Sector and/or Charity Commission to attend.

Item 6 - Scottish Law Commission Discussion Paper on Unincorporated Associations

11. The Working Group noted that the Scottish Law Commission had published a Discussion Paper on Unincorporated Associations and that SLC Commissioner, Colin Tyre QC, had been invited to speak to the Working Group at its meeting on 29 January 2009. SCVO, jointly with the SLC, would be holding some focus groups through the CVS network to discuss the proposals in February.

12. The question was posed as to whether the SLC's models for granting limited liability and legal personality for unincorporated associations might offer practical alternatives to the Company Limited by Guarantee model for SCIOs. It was observed that the SLC Discussion Paper was addressing some of the same questions as the Working Group and that perhaps the Group should consider whether the answers suggested would provide a more attractive, simpler option than the company model. The primary legislation for SCIOs may not allow for the route proposed by the SLC but the 2005 Act may need to be reassessed if this were determined to be a better model.

13. However, there were other views that questioned whether the attribution of limited liability without safeguards should be pursued as public policy. Could this work for charities as a regulated sector? Action: Working Group to consider policy implications of Scottish Law Commission's Discussion Paper on Unincorporated Associations at its next meeting on 29 January 2009.

Item 7 - Pre-consultation with banking and funding sectors.

14. Copies of letters which the Chair had sent to organisations representing funders and lenders had been circulated to the Working Group. It had proved difficult to engage with these sectors but this was not intended to be the extent of engagement. The chair suggested that a symposium with the sector be arranged at a later date to engage in a more structured manner. Action: Working Group to consider responses received from funders and lenders to initial request for views on the SCIO at its next meeting on 29 January 2009 and assess whether a separate pre-consultation event would be merited.

Item 8 - Discussion of future work programme

15. The Chair acknowledged that the original intention had been for the Working group to submit its draft consultation by the end of March but the question of a possible extension was put to the Working Group. If the direction of implementation for the CIO in England and Wales was unlikely to be clear much before the end of March, the Working Group might wish to wait, to ensure that its consultation was able to accurately describe the proposed CIO regime. This suggestion was greeted positively, as it was considered useful to be able to draw on lessons learned elsewhere. However, there was also a plea for swift implementation, given the considerable anticipation and a growing crisis in trusteeship amongst small unincorporated charities, which the introduction of the SCIO might help to stem.

16. The Group agreed that the next meeting on 29 January would be held in Glasgow and the following meeting (in March, date to be confirmed) would be held in Dundee.

Summary of action points

Constitutions

• Action 1: put questions of constitutional powers to lenders.
• Action 2: raise question of whether corporate bodies could be trustees and/or members of a SCIO in consultation.
• Action 3: raise question of whether membership of a SCIO should be open to employees in consultation.
• Action 4: look for international models for addressing members' rights and powers in third sector/charitable organisations
• Action 5: model constitutions should allow publication of minutes of proceedings to be optional.
• Action 6: redrafted model constitutions and annotated version of Regulation 38 (CIO General Regulations) be circulated.
• Action 7: raise question of whether optional clauses should be included with a mandatory constitutional baseline in consultation.

Future programme of work

• Action 8: include further consideration of CIO developments in agenda for Working Group meeting in March and invite Office of Third Sector and/or Charity Commission to attend.
• Action 9: Working Group to consider policy implications of Scottish Law Commission's Discussion Paper on Unincorporated Associations at its next meeting on 29 January 2009.
• Action 10: Working Group to consider responses received from funders and lenders to initial request for views on the SCIO at its next meeting on 29 January 2009 and assess whether a separate pre-consultation event would be merited.