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CO3: Good Governance – Leading the Way: 3

Developing your Board to MeetNew Governance Challenges

Charity Law & Company Law Changes

Jennifer EbbageCleaver Fulton Rankin, Belfast

4 June 2008

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Introduction to Cleaver Fulton Rankin

• One of Northern Ireland’s leading law firms• Association with Matheson Ormsby Prentice,

Dublin• Only Northern Ireland firm ranked in charity

law in Chambers UK Directory• Members of Charity Law Association• Legal advice to charities, social enterprises,

housing associations, not for profit organisations and companies

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Outline of Talk

• Board awareness of new legislation:

– Charities Bill – Northern Ireland Assembly

– Companies Act 2006

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Northern Ireland – present and future

Part of UK but Northern Ireland has separate legal jurisdiction

Present•No charities regulator (but consent of DSD/High Court/Att Gen in some matters)•Tax exemptions - HMRC Bootle •Legislation 1964 and 1987 and case law

Future •Major reform in UK [and Ireland]•Charities Bill - Northern Ireland Assembly •2008 implementation •Major changes to NI Regime

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Charities Bill - NI

• Culture change

• Modernises and updates the law

• Supervision & support for charities

• New advisor and regulator - Charity Commission for Northern Ireland

• Openness and transparency

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What is a charity?

• All institutions which are charities under the law of Northern Ireland must register

• What is a charity: established for charitable purposes only and subject to the control of the High Court in Northern Ireland

• Demonstrate “charitable purposes”: 2 part test:

12 charitable purposes and public benefit

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What is a charitable purpose?

•Four at present (presumption of public benefit):–Relief of poverty–Advancement of education–Advancement of religion–Other - benefit of the community

•Under new Bill -12+ charitable purposes

•Some differences from other parts of UK

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Charitable Purposes

New 12 include:• Advancement of health or saving of lives• Advancement of the arts, culture, heritage or science• Advancement of human rights, conflict resolution or reconciliation

or promotion of religious harmony or equality or diversity (includes peace and good community relations)

• Advancement of amateur sport• Advancement of environmental protection or improvement• Advancement of citizenship or community development• Relief of those in need by reason of youth, age ill-health, disability,

financial hardship or other disadvantage• Advancement of animal welfare• Other analogous to or within the spirit of the above

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Public Benefit Test

• No presumption of public benefit

• What is the benefit?• How does it relate to charity’s aims?• How is benefit gained or likely to be gained by the

public versus disbenefit incurred or likely to be incurred, eg harm or detriment arising?

• Commission must issue guidance

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Charity Commission for Northern Ireland

• Body corporate – independent NDPB• Members appointed by DSD• Advisory and regulatory role• Functions:

– Determine if an institution is a charity– Facilitate better administration– Identify mismanagement misconduct and act– Public collections regulator – Register of charities

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Powers of the Commission

• Institute enquiries • Report on enquiry to the public• Make disclosures to other public bodies• Remove/ disqualify trustees• Appoint interim merger• Protect and direct application of charity property• Take Attorney General’s role in some matters• Determine membership of a charity

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Trustees

• Guidance• Under more scrutiny• Disqualification of trustee and removal from office &

register will be kept by Commission• But - relief from liability too if breach of trust/duty &

act reasonably, honestly and ought fairly to be excused

• Remuneration (but not in capacity of trustee)• Trustee indemnity insurance – in statutory form- if in

best interests of charity but subject to express prohibition in gov inst

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Regulation & Reporting – Trustees Responsible

• Specific info on sector will be collected enabling yearly comparisons

• Trustees keep accounting records• Prepare and submit annual statement of accounts

to Commission• Must have accounts examined or audited as

required• Duty of auditors to report to Commission• Annual report• Annual return

Disclosure of charity status

• Disclose that a charity on official publications involving money or soliciting for property: cheques, invoices, documents, advertisements, bills

• Registration number to appear on official publications

• Person guilty of offence for non compliance - fine

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Charitable Companies (& also note Companies Act 2006)

• Commission can petition for a winding up/for restoration of dissolved companies

• Alterations ineffective without consent of Commission: – Memorandum and Articles– Dissolution clause– Members’ benefits

• Ultra Vires acts - ratification• State “charity” on company stationery

documents/communications/ at location/conveyances

• Commission can send in auditors

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Charitable Incorporated Organisations

• Body corporate but not a company (not regulated by Companies Act)

• Charitable body corporate• Regulated by Commission not Companies

Registry• Not a Community Interest Company• Company limited by guarantee or shares or I & PS

can convert to a CIO

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Charity Land

• Official Custodian – holds charity property but not manage it

• Dealings with charity property by Commission eg if no power in gov inst

• Preservation of charity documents by enrollment/deposit

• Incorporation of trustees

Dealings with charity land

• Power of charity trustees to dispose of land/grant a lease/lands held in trust

• Order of Commission or Court required in some instances

• Safeguards - disposal must be on best terms reasonably obtainable

• Land held in trust for a charity- state• Safeguards when mortgaging charity land• Miscellaneous provisions e.g. designated land,

execution of deeds

Take advice18

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Fundraising

• New rules – public charitable collections– street and ‘door to door’

• Public collections certificates• Permits• Professional fundraiser written agreements

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What does it mean for non-Northern Ireland charities, e.g. Irish, English?

•“Section 167 Institution” – not a charity under the law of Northern Ireland but which operates for charitable purposes in or from Northern Ireland

•Required to register in Northern Ireland

•A separate “parallel” register of “Section 167 Institutions”

•A clarification of “operates” - fundraise? - presence? - activities?

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Section 167 Institutions (2)

•Required to prepare and submit:–Financial statement; and –Statement of activities relating to its Northern Ireland operations for charitable purposes

•Open to public inspection

•Commission may extend other parts of Charities Bill to Section 167 Institutions

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Additional Features

• Designated religious charities

• Charity Tribunal

• Simplification of Cy-près – alteration of the purposes for which charity property may be applied

• Mergers & mergers register

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Companies Act 2006

• Consolidates and changes company law• Largest statute on UK statute book• Phased implementation up to October 2009

• Will affect charities which are companies limited by guarantee

• Will affect trading subsidiaries which are companies limited by shares

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1 October 2009 - Constitution

• Memorandum of association will become form filling exercise• Articles of association become significant constitutional

document• Objects clause disappears:

– Company has unlimited capacity unless stated otherwise – charitable objects will restrict capacity

• Existing companies’ existing absolute or conditional entrenchment continues i.e. provisions that may not be altered or may only be altered if certain conditions are met

• Possible to conditionally entrench restrictions in articles of association, especially for charities

• Absolute entrenchment for new companies will be impossible

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Meetings and Company Secretary & Deeds

• AGMS no longer required (unless articles say otherwise)

• 14 days notice of AGM (unless articles say otherwise)• Short notice - 95% now 90% (unless articles say

otherwise) • Requisition of members 10% now 5%• Company Secretary no longer a legal requirement

(unless articles say otherwise)• Deed may be executed by one director before a

witness who must also sign• Accounts

– Distribute to all members and no requirement to lay at AGM (unless articles say otherwise)

– File within 9 months not 10

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Written Resolutions

• Special written resolutions can be passed if 75% voting members agree

• Ordinary written resolutions can be passed if majority agree

• Change of format and circulation requirements: – 28 days or lapse– No vote is a “no vote”

Take legal advice

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Proxies – Major Change

• Overrides Articles – statutory right• Notice of general meeting or AGM must contain

statement informing member of right to appoint a proxy

• Failure to include statement is an offence that attracts a fine

• Enhanced rights of proxies to attend, vote and speak• Proxy need not be a member• Timetable for return of proxy changed• New format for notice of meeting of members and

notes regarding proxy votes

Take advice

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Register of Members

• Keep addresses private• Inspection right• Proper purpose – right to refuse and go to court 5

days!

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Directors

• Must be at least one natural person (check trading subsidiaries)

• Service address -Residential address of directors and company secretary no longer accessible at Companies House/Registry

• Must keep minutes for 10 years of meetings after 1 October 2007– Criminal offence

• Director and charity trustee

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October 2007 - Duties of Directors

• Some in force from 1 October 2007 (remainder 1 October 2009)

• Duties owed to the company/charity not to other directors nor to members

• Duty to promote the success of the Company:• Powers must be exercised in furtherance of the

Company’s charitable objects or charitable purposes only

• Produce report/review to show members how directors have done this

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Director’s Duties (contd)

• Statutory code of general duties: a codification of common law with some changes

• Regard to be had to the common law rules and equitable principles in interpreting and applying the general duties

• Codified duties apply to shadow directors to the extent the corresponding common law or equitable principles apply

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Directors’ Duties (contd)

• Seven general duties (sections 171-177)October 2007• Act within powers• Promote the success of the company*• Exercise reasonable care, skill and diligence• Exercise independent judgmentOctober 2009• Not to accept benefits from third parties• Declare interest in proposed transaction or

arrangement with the company [remuneration]• Avoid conflicts of interest*

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Directors Duties – Conflicts of Interest

• Duty to avoid conflicts of interest (section 175)• Duty not infringed if the situation cannot

reasonably be regarded as likely to give rise to a conflict of interest, or it has been authorised by the directors

• Independent board authorisation of conflicts• Companies may need to amend articles if wish to

authorise conflicts Good Test: if the conflict is not specifically

authorised in the Mem & arts the trustee should not carry out the act

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Directors’ Duties – Promote the success of the company

• Duty to promote the success of the company in furtherance of the company’s charitable objects or purposes and have regard (amongst other matters) to:– The likely consequences of any decision in the long term– The interest of the company’s employees– The need to foster business relationships with suppliers,

customers and others– The impact of company’s operation on the community

and environment– The desirability of the company maintaining a reputation

for high standards of business conduct– The need to act fairly as between members

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Directors’ Duties - Actions to Take

• Will the codified duties and the list of factors to “have regard to” lead to greater bureaucracy at board level?

• Impact on board minutes and recording that you considered statutory duties when making resolutions/decisions

• Inform your board of directors of the codified duties

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Stationery & Communications

• Full statement of company name, registration place, company limited by guarantee/shares, number and registration office and if a charity state that and charity number and HMRC Ref number– Websites– Order forms– Emails

• New rules on electronic communication with members– Consent

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Actions

• Review your Memorandum and Articles of Association

• Review your stationery, emails & website to include the required information

• Speak to your solicitor regarding notices and proxies in good time before meetings eg AGM

• Board training on directors duties and compliance

• Amend format for recording board decisions to take account of duties

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