The Charities (Regulation and Administration) (Scotland) Bill was introduced on 15 November 2022. If passed, the Bill will make significant changes to charity law in Scotland as it seeks to strengthen and update the current legislative framework.

Changes to the powers of the Office of the Scottish Charity Regulator

The Bill contains a range of provisions that are intended to clarify – and in some cases extend – OSCR's powers to regulate charities and to deal with misconduct and mismanagement on the part of charity trustees (and former trustees).

The key points

The measures under the Bill include:

• A new power for OSCR to appoint interim trustees;

• Extended powers in relation to OSCR inquiries;

• A new power for OSCR to issue positive directions; and

• Provisions to make clear that OSCR should not regulate charities with no, or a negligible, connection with Scotland.

The detail

Interim trustees

OSCR already has a power to appoint an 'acting' charity trustee where a charity does not have enough trustees in place to be able to make new appointments itself.

The Bill will replace the terminology of 'acting' trustee with the new language of 'interim' trustee and expands the circumstances in which an interim trustee can be appointed. In particular, while OSCR will continue to be able to make an appointment if requested to do so by the charity, it will also be empowered to do so 'of its own accord' or in response to representations made to it by any person.

The new power is to apply where OSCR is satisfied that the charity has no existing charity trustees or that there are trustees but either they cannot be found, they are not acting and are not expected to resume acting, or there aren't enough of them to make a request to OSCR. This change is intended to provide a cheaper and more effective alternative to the appointment of a judicial factor which is currently one of the only options available where there are no (or insufficient) trustees available to make a request to OSCR for appointment of an acting trustee.

An interim trustee can be appointed for a maximum of 12 months, with the possibility of an extension of up to 3 months and, as was the case in relation to acting trustees, there is no bar to an interim trustee being appointed in due course as an 'ordinary' trustee.

OSCR's inquiry powers

The policy intention behind the Bill's proposed changes is to address a perceived (and real) gap in regulation. As matters stand, while OSCR can inquire into potential misconduct and mismanagement in relation to charities that are on the charity register it cannot do so if a charity has ceased to be on the register. That results in a loophole in terms of which mismanagement or misconduct that comes to light after an organisation ceases to be a charity may go un-investigated and the charity trustees responsible may not be the subject of appropriate regulatory action.

The Bill will extend OSCR's inquiry powers to persons who represent a body as a charity even where the body is not on the register and makes clear that OSCR's existing powers to inquire into charities and charity trustees are available to it whether or not the charity, body or person "continues to exist". There are safeguards that restrict OSCR's inquiries to the periods during which the charity was on the register or an individual was holding themselves out as representing the charity except where there are ongoing concerns about the application of protected charitable assets.

The Bill will also make more minor changes to OSCR's powers, including in clarifying when and how OSCR can demand the production of documents and information.

Positive directions

The Charities and Trustee Investment (Scotland) Act 2005 already empowers OSCR to issue directions to charities and others in certain circumstances. One example is the power to direct a charity which is the subject of an OSCR inquiry not to undertake particular activities for up to 6 months; another is the power to direct a body that is representing itself as a charity to stop doing so. With rare exceptions OSCR's powers of direction are negative: preventing certain action being undertaken.

The Policy Memorandum accompanying the Bill notes that the absence of powers to require charity trustees to take positive action (the example given is a requirement to ensure the proper management of a conflict of interest) "has had a negative impact on OSCR’s ability to intervene in certain cases. The addition of a power to issue positive directions will enhance OSCR’s inquiry and enforcement powers in terms of protecting charitable assets, supporting good and improving public trust in particular charities".

The power will apply only where it appears to OSCR, after it has made inquiries under the 2005 Act, that there has been misconduct in the administration of a charity, or a body controlled by a charity, or that it is necessary or desirable to act for the purpose of protecting the property of a charity or securing a proper application of such property for its purposes. This is essentially the same test to be met by OSCR when it is considering making an application to the Court of Session for enforcement orders against a charity or charity trustees.

Where the test is met OSCR may direct the charity to take such step as OSCR considers to be "expedient in the interests of the charity".

No or negligible connection with Scotland

Finally, the Bill creates a new basis on which OSCR can refuse to enter a charity in the register or can remove an existing charity from the register: where the charity or body has no connection or only a negligible connection with Scotland.

The purpose of the reform is to ensure that OSCR is regulating only those charities that it can regulate effectively. In determining whether the charity has the requisite connection with Scotland OSCR must have regard to a range of factors including whether the charity has (or intends to have) a principal office in Scotland occupies land or premises in Scotland or carries out activities in premises in Scotland, whether it is established under the law of Scotland and whether individuals concerned in the management or control of the charity are resident in Scotland. The Scottish Ministers can add or remove factors that are to be treated as relevant to the 'connection' test.

The Bill has now been allocated to the Social Justice and Social Security Committee of the Scottish Parliament for its Stage 1 consideration, in terms of which the Parliament will decide whether it agrees to the general principles of the Bill. The Parliament has indicated that it would wish to see this stage concluded by the end of April 2023.

As noted, this is the fourth article in a series of updates relating to the Bill. If you have any questions as to how the Bill will affect you or your organisation, please contact Kenneth Pinkerton, Christine O'Neill KC, or your usual Brodies contact. Please see part onepart two, and part three of our series.