Justice Committee

Meeting date: Tuesday, December 3, 2013

Official Report 625KB pdf

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Subordinate Legislation

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Scottish Charitable Incorporated Organisations (Removal from Register and Dissolution) Amendment Regulations 2013 [Draft]

Item 2 is consideration of a draft affirmative instrument that will make changes to the powers of the Office of the Scottish Charity Regulator in relation to Scottish charitable incorporated organisations. I welcome to the meeting the Cabinet Secretary for Finance, Employment and Sustainable Growth, John Swinney, and his officials Susan Gilroy, who is a senior policy manager, and Felicity Cullen, who is from legal services. It is nice to have a different cabinet secretary instead of the usual suspect. I have made John Swinney laugh—that is good.

I invite the cabinet secretary to make an opening statement, once he has stopped giggling.

I am delighted to be here. Thank you for that unexpected welcome. I am slightly concerned about the linking, at a meeting of the Justice Committee, of the title “cabinet secretary” with the word “suspect”—I will share that with Mr MacAskill later this morning.

I welcome the opportunity to discuss with the committee the draft Scottish Charitable Incorporated Organisations (Removal from Register and Dissolution) Amendment Regulations 2013. The framework under the Charities and Trustee Investment (Scotland) Act 2005 to enable organisations to become Scottish charitable incorporated organisations was commenced back in 2011. The Scottish Charitable Incorporated Organisation (Removal from the Register and Dissolution) Regulations 2011 (SSI 2011/44), which were made under the 2005 act, set out how a SCIO could be dissolved and removed from the Scottish charity register.

We took our time in developing the SCIO legislation because we wanted to get it right. We wanted it to be of value to Scottish charities, and we wanted it to be something that would allow the Scottish charity sector to flourish.

Under the 2011 regulations, we adopted different dissolution approaches for solvent and insolvent SCIOs, and we tried to develop processes that were designed to meet SCIOs’ circumstances. For solvent SCIOs, we developed a scheme that allows SCIOs to quickly wind up their affairs and be dissolved by OSCR. The process is similar to the voluntary winding up of a company, but it is not handled by an insolvency practitioner. That approach provides SCIOs with a cheap and simple method for ceasing to exist. In allowing representations to be made, the process affords protection to creditors and any other person who may have an interest in the SCIO.

The 2011 regulations have now had more than two years to become embedded and it appears that we have achieved what we set out to do. However, there is a slight omission, in that if OSCR issues a direction to a SCIO to change its name and the SCIO fails to comply with that direction, there is no provision in the 2011 regulations that allows OSCR to require the SCIO to be dissolved. The only option that is currently available to OSCR under the 2005 act is to remove the SCIO from the charity register. That is at odds with the original policy intention of the 2011 regulations, which was that a SCIO should always be wound up prior to its being removed from the register. No other exit route from the charity register should be available. That is particularly important, as it ensures that the interests of beneficiaries, creditors and other third parties are protected. All outstanding debts and liabilities should be transferred, and any surplus assets should be transferred, to another body or bodies, the charitable purposes of which are the same as, or resemble as closely as possible, those that are set out in the SCIO’s constitution.

The draft instrument will amend the 2011 regulations to ensure that that happens for SCIOs that have failed to comply with a direction to change their name so that in future, regardless of the situation, a SCIO will be required to be dissolved before it is removed from the charity register. Together with the other sets of SCIO regulations, the instrument will create a package that is designed to meet the needs of Scottish charities now and in the future.

Thank you very much, cabinet secretary. Are there any questions?

Good morning, cabinet secretary. Have any charities not been wound up before being removed from the charity register? If so, what happened to the assets?

What has given rise to the position is essentially a situation where OSCR wished an organisation to change its name and the organisation did not take that forward. I suppose that I would describe the situation as something of an impasse. That highlighted an anomaly in the original regulations, which were at odds with the policy intention. The policy intention of the 2011 regulations is exactly the same as the policy intention that I am setting out today. It is just that we have unearthed an anomaly that we now wish to resolve.

There was one incident, then.

That is correct.

What happened to the assets in those circumstances?

OSCR concluded that it was unlikely that the SCIO was operating or that it had any assets or liabilities so, in a sense, the issue took care of itself, but it highlighted a weakness in the regulations that we seek to amend.

Thank you.

If a charity does not change its name, it does not come off the register until such time as it is wound up. I understand that. However, I think that you said that the assets and liabilities would be transferred to a charity with a similar purpose. What if that charity does not want the assets and liabilities transferred to it, for example because there are more liabilities than assets? What would happen then?

The regulations are essentially about ensuring that there is an orderly process for dealing with all arrangements and connections with assets and liabilities. That was not properly and fully provided for in the original regulations. There will be no obligation for the assets and liabilities to transfer to another organisation, but there will be an obligation to resolve all questions of assets and liabilities before a SCIO is wound up and removed from the register. The regulations put in place an orderly process for dealing with circumstances where a SCIO cannot remain on the register in advance of its being removed from the register.

I take it that an insolvency practitioner will come in. Is that the case? I understand what you are doing, but where there are assets and liabilities, will it be for the insolvency practitioner to offer whatever there is—say, if there are quite a lot of assets and they outweigh the liabilities—to a similar charity? Who will do that?

I ask Felicity Cullen to comment.

The regulations give OSCR the ability to go to the Court of Session. If a SCIO is not playing ball with the request to go through the dissolution process before it is removed from the register, OSCR can go to the Court of Session and ask the court to do it on behalf of—

So OSCR is a legal entity in its own right. It can pursue something.

Yes.

I did not realise that. Thank you. That clarifies the position.

That process reflects what already happens where a SCIO is failing the charity test. In that situation, again, OSCR can go to the court and say, “This SCIO is not co-operating. We want to resolve it in this way.”

Thank you.

I note from our papers that a full public consultation has not been undertaken. Is there any reason for that? I also note that there will be associated costs for OSCR as a result of the process. Can you give us a ballpark figure for what the costs might be?

Our judgment on consultation was driven by the fact that a full consultation was undertaken around the 2011 regulations. As I explained in one of my earlier answers, the policy intent has not changed. It is simply that we have identified an anomaly in the regulations that requires to be addressed. We did not feel that there was any necessity to consult because the policy was not changing. We are satisfied that adequate consultation took place in the public consultation on the 2011 regulations, which ran from November 2009 to February 2010 and included consultation with stakeholder groups in various locations around the country.

On the costs, maintaining the register is a core function of OSCR and it incurs costs in fulfilling that role and responsibility. I do not envisage that the regulations will involve OSCR incurring significantly more costs than are already associated with winding up a SCIO and removing it from the register.

As there are no other questions, that concludes the evidence session.

Item 3 on the agenda is the formal debate on the motion to recommend approval of the instrument that was considered under item 2. I invite the cabinet secretary to move motion S4M-08390.

Motion moved,

That the Justice Committee recommends that the Scottish Charitable Incorporated Organisations (Removal from Register and Dissolution) Amendment Regulations 2013 [draft] be approved.—[John Swinney.]

Motion agreed to.

Thank you very much, cabinet secretary. Brief, but pleasant—I am talking about us.

As members are aware, we are required to report on all affirmative instruments. Given the deadline, are members content to delegate authority to me to sign off the report?

Members indicated agreement.

I suspend the meeting for a couple of minutes to allow witnesses to take their seats. Members should stay put.

10:10 Meeting suspended.

10:12 On resuming—