Strengthening Scottish charity law: analysis of engagement responses

6. Proposal 4

Context

6.1 Proposal 4: A power to issue positive directions to charities.

6.2 Proposal summary: OSCR has legal powers to issue specific types of direction to charities and charity trustees. Most of OSCR's powers are preventative, requiring charity trustees or others not to take particular actions. OSCR cannot direct charity trustees to take a specified positive action to remedy non-compliance or protect charitable assets.

6.3 One option would be to give OSCR a power to issue positive directions. The Charity Commissions for England and Wales, and Northern Ireland both have a wide-ranging power of positive direction. If OSCR had such a power this could enhance its inquiry and enforcement powers in terms of protecting charitable assets and supporting good governance.

6.4 A positive direction could be coupled with a corresponding obligation on OSCR to publish an associated inquiry report, which could improve public confidence that OSCR was taking positive steps to remedy misconduct and protect assets. If a charity failed to comply with a positive direction that OSCR issued, it could be classed as misconduct. This could mean that enforcement action would be taken against the charity or trustees as appropriate. This is currently the case if a charity fails to comply with a direction from OSCR.

6.5 2019 Consultation response summary: The vast majority of respondents reported that OSCR should be given a power to issue positive directions (83%). There was more mixed feedback regarding whether the power to issue positive directions should be wide-ranging or a specific power. Just over half of respondents that reported that OSCR should be given power and a remit to issue positive directions stated that this should be wide-ranging.

Question 10

If a positive power of direction were to be specific, what areas should be subject to the power, or are there any areas that should not fall within the power?

6.6 Around 85% of online survey respondents answered Question 10.

Points raised were similar to the 2019 consultation

6.7 First, there were a variety of comments within online survey responses that reiterated points raised in the 2019 consultation, and which were not directly related to the question posed at Question 10. This included:

• Preference for whether the power to issue positive directions should be wide-ranging or a specific power.
• There were a handful of respondents who did not think a positive power of direction was necessary, and that OSCR's current powers were said to be adequate and appropriate.
• That OSCR should not be able to make directions unless (a) it has instituted an inquiry into the charity concerned and (b) is satisfied that its proposed direction is proportionate in terms of securing the application of the charity's resources for its stated purposes and to provide public benefit.
• That there would need to be clear distinction between the powers held by OSCR and the powers of the Court of Session.
• That there should be provision for appeals and exceptions.
• A concern raised was around the resources and capacity available within smaller charities to implement any corrective action (i.e. people and money).

Areas that should be subject to the power of direction

6.8 Second, if a positive power of direction was to be a specific power, online survey respondents were more likely to suggest areas that should be subject to the power, rather than areas that should not fall within the power.

6.9 Almost half of online survey respondents that answered Question 10 identified circumstances where a power to issue positive directions could be used by OSCR to "facilitate early support and resolution of problems identified during the course of inquiries". Here, there was broad support for OSCR to be proportionate in its dealings with charities, and for the positive power of direction to be used "sparingly", "in exceptional circumstances", "appropriately", etc.

6.10 The most common areas that were identified for inclusion were around a breach of trust or duty or evidence of other non-compliance, misconduct or mismanagement in terms of the following three areas:

1. Financial management.

2. Safeguarding.

3. Governance.

6.11 Where more detailed examples were provided, these typically supported OSCR to have a specific power:

• To appoint additional trustees (e.g. in order to form a quorum or meet a minimum specified in a governing document).
• To remove trustees.
• To take a specific action in line with the charity's governing document (e.g. to hold an AGM to make a specific decision or take action to remove a trustee in line with the powers they have; failure to hold regular trustee meetings; diversion from charity's objects, misuse of voting rights, when a charity has consistently not adhered to its aims and objectives as per its constitution).
• To manage a conflict of interest effectively and demonstrably.
• To direct charities to prepare and submit annual accounts.
• To address misconduct in the administration of a charity.
• To preserve a charity's assets or secure their proper application.
• To address issues around misuse of funds and/or misuse of the power by trustees.
• To direct the trustees to transfer all assets of the charity to another charity - and hence, in effect, to bring about the windup of the charity concerned.

6.12 In addition, almost one-fifth of online survey respondents (primarily individuals) reported that no areas should be excluded from the positive power of direction in order to remedy non-compliance and/or protect charity assets - "All areas of the charity should be open for OSCR to investigate".

Areas that should not be subject to the power of direction

6.13 As noted above, very few respondents made explicit reference to areas that should not fall within the power. Where mentioned, this typically centred on:

• The day-to-day operational management of charities – the importance of protecting and maintaining a "charity's independence from political pressures and interference" was emphasised.
• Churches also noted that there was an expectation that such powers would not be exercised in relation to Designated Religious Charities which in effect have their own regime.

"It would not be appropriate for OSCR to be given power to issue positive directions to designated religious charities, which have evidenced that they have an internal organisation such that they exercise supervisory and disciplinary functions in respect of their component elements and are currently exempt from the interdictory/preventative powers contained in sections 28(3), 31(4) and 31(6) of the 2005 Act. Any enactment which would give OSCR a power to issue positive directions should be added to the list of provisions in Section 65(4) of the 2005 Act which do not apply to either designated religious charities or any component element thereof which is itself a charity. This would also be necessary so as to retain the current dis-application of other provisions of the 2005 Act to designated religious charities". Free Church of Scotland

6.14 Colleges Scotland (Good Governance Steering Group) supported the proposal in principal but requested further clarity regarding the following point:

"….board appointments in the college sector are at the direction of Ministers and as such, college legislation would precede charity legislation in that context. As such we would advise there is a need to ensure that OSCR is clear and consistent in the application of powers and in taking relevant legislation into account".

Question 11

How long should a charity have to comply? What should be the consequences of non-compliance with a positive direction?

Length of time dependent on a number of factors

6.15 In terms of the first question around how long should a charity have to comply with a positive direction, the general consensus among a majority of respondents to the online survey was that this would depend on multiple factors such as the:

• Scale/nature/regularity of non-compliance and complexity of the problem.
• Nature of the direction.
• Specific circumstances of the charity receiving the direction (e.g. the size of the charity, its resources and capacity to comply with the power of direction).

Importance of proportionality and flexibility

6.16 In light of the above points, there was strong support expressed for proportionality and flexibility of approach, with charities given a reasonable timeframe to respond to, and comply with, a positive direction issued by OSCR.

6.17 The main view was that a range of timescales might work best for a charity to comply with a positive direction (i.e. a sliding scale), and to be determined on a case-by-case basis. A few noted support for OSCR to have discretion over how long a charity should be given to comply with a positive direction - this would also align with other UK Charity Regulators.

6.18 It was considered important that a charity was allowed to request a review of these decisions and the power of appeal to First-tier Tribunal for Scotland, Upper Tribunal for Scotland and ultimately the Court of Session.

Specific time period

6.19 Over one-quarter of survey respondents provided a specific time period, and this spanned:

• Less than one year (e.g. one month, six weeks, three months, six months).
• One year.
• More than 12 months (the longest time period proposed was five years).

6.20 Further, a few noted that "a direction may have to last indefinitely, that is until revoked by OSCR" or "until OSCR had satisfied themselves that the positive direction had happened".

Consequences of non-compliance with a positive direction

6.21 The proposed consequences of non-compliance with a positive direction were most commonly framed in terms of misconduct in the administration of the charity, and that this could result in:

• Disqualification of trustees and senior managers.
• Suspension of the charity pending review of reason for non-compliance or till issue resolved.
• Removal of charitable status.
• Merger with another similar charity.
• Closure of the charity.
• Freeze/seizure of charitable assets.
• OSCR having the power to appoint a trustee/manager specifically to oversee the changes.
• Issues of criminality passed to the police.

6.22 Similar to responses on timeframes, the general consensus was that the scale/severity of the consequences of non-compliance with a positive direction should be proportionate to the scale/nature of non-compliance (e.g. a tiered approach through the use of sanctions and fines). It was considered crucial that OSCR took into account any reasons outwith the control of the charity that affected its ability to comply with the positive direction within certain time limits.