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Charity Commission changes stance on transfer of assets

Charity Commission changes stance on transfer of assets
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Charity Commission changes stance on transfer of assets1

Governance | Niki May Young | 25 Oct 2012

Charities seeking to transfer assets after dissolving to set up a charitable company with the same directors will now require Charity Commission approval to do so, the regulator has advised.

In a letter from the Commission's chief legal adviser Kenneth Dibble to the Charity Law Association's chair, Ann Black, Dibble said the Commission has recently dealt with a number of cases where unincorporated charities have sought to do this - usually to enable them to start trading.

The regulator has previously "taken a view" that legal implications in the Companies Act centred around conflict of interest do not apply, he said, but speaking to civilsociety.co.uk Dibble said:

"The matter has recently been raised with us by legal practitioners seeking consent, who were of the view that it did in fact apply on a strict reading of the legislation. We reconsidered the matter and formed a similar view, in part due to the consolidation of companies legislation. We raised the matter with Companies House, who agreed."

The change of stance means that unincorporated charities who wish to dissolve in order to become a charitable company will be faced with an additional regulatory burden, having to seek prior approval from the Charity Commission to transfer assets to the new company. 

The change is not set in stone, however, with the Commission conceding that: "We are willing to be convinced otherwise if a compelling case can be made."

The matter now rests with the Charity Law Association which says there is "more work to be done" on its response to the Commission.

 

Richard King
Head of Charities and Schools
Tozers LLP
26 Oct 2012

The issue is a bit more involved than this article suggests. I won't bore you with the detail, but basically CC consent is (supposedly) required, not for the transfer itself but for a resolution by the members of the new company approving the transfer to it of 'substantial non-cash assets' [the 1st limb of the statutory definition is meaningless in the context of a new guarantee company, but the 2nd limb suggests that it means anything over £100K].
This requirement had escaped most charity lawyers - myself included!
But it is all a bit of a nonsense. This Companies Act provision was intended to protect the company from the self-interested actions of a conflicted director. The members could stop the transfer. But in the charity context the director would not be transferring his own assets so the company does not need protecting.

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