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Asset distribution is sticking point in Charity Bank case

Governance | Tania Mason | 16 Aug 2012

The stumbling block for the Charity Commission in approving the requested changes to Charity Bank’s governing documents in order to allow it to comply with new banking regulations, is the proposal to allow it to distribute assets among its shareholders in the event of a winding up.

A letter from the Commission’s chief legal adviser Kenneth Dibble to Charity Bank, dated 20 April 2012, explains why it cannot agree to all the changes requested and states that this is the only sticking point.

The letter, obtained by civilsociety.co.uk under the Freedom of Information Act, states that Charity Bank wished to include a new article in its articles of association as follows: “If any property remains after the company has been wound up or dissolved and all debts and liabilities have been satisfied, it shall be distributed pari passu amongst the holders of ordinary shares and B ordinary shares of the company.”

This would allow it to comply with new European banking regulations.

However, Dibble responded: “The Commission considers that this presents a difficulty under charity law and we are not able to agree to this proposed change.”

He went on: “We do not consider that the fact that all the shareholders are charities removes the objection because a distribution on the winding up would not be a decision by the trustees to further charitable purposes but the result of an administrative process to distribute the surplus.”

No objection to removing dividend cap

The Commission said it did not object to another of the proposed changes, that of removing the cap on dividends paid, as it accepted this cap could not be retained if Charity Bank was to meet the new banking rules.

However Dibble said he would prefer to add the following wording to the objects clause:  “Provided for the avoidance of doubt that it is not an object of the company to generate profits for distribution to its members.”

He concluded: “The amendments to the other articles are unobjectionable and the Commission has no objection to the proposed alterations.

“Accordingly, the only amendment to which we are not prepared to give consent…is that to article 148 on the basis that Charity Bank is to continue to be a charity in law.”
He acknowledged that this puts Charity Bank in a difficult position with regard to compliance with the new banking rules and added that it was entitled to challenge the decision in the Charity Tribunal.

Charity Bank has already lodged an appeal to the Tribunal but according to the Charity Tribunal website today, the status of the case has changed to ‘stayed’. 

Asked what that meant, Mark Howland, head of marketing at Charity Bank, said: “All we can say at this stage is that discussions with the Charity Commission are ongoing and we believe these will lead to a satisfactory resolution.”

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