Charities Must Get Their Houses In Order To Avoid ‘Constitutional Crisis’

Since the Office of the Scottish Charity Regulator (OSCR) published the pilot report for its ten-year “rolling review” (under which every one of Scotland’s 23,500 charities will have to demonstrate its public benefit), the sector has been poring over its findings for clues into the approach OSCR will take.

While the report is to be welcomed, the failure of one of the pilot participants, because of a technical issue in the wording of its constitution, is an early sign of a potential “constitutional crisis” for many of its peers.

The litmus test of whether or not the pilot was a success is to consider whether OSCR was the proportionate regulator it is obliged to be. There seems no doubt that OSCR approached this review in an enlightened and engaged manner. It is clear that constructive dialogue and learning by experience underpinned its approach, and that it should be congratulated on what appears to be a good example of regulatory practice.

OSCR is not seeking to prosecute charities, but to engender good practice by being a comprehensive regulator. This is crucial both to the confidence of charities in OSCR and, ultimately, public faith in charities.

The public would not thank OSCR for “striking off” charities that, with appropriate regulatory guidance, might still offer real public benefit. In this respect, it is heartening to read that bodies in need of change are, indeed, being guided in good faith by OSCR, and being given proper time and encouragement to make alterations.

It is not, however, good news for all charities. It appears all constitutions that do not refer to the Charities and Trustee Investment (Scotland) Act 2005’s formulation of “charitable purposes” – including those of the vast majority of charities formed before 2005 when the 2005 Act, of course, did not exist – will require amendment if they wish to retain their charitable status.

This is the potential “constitutional crisis” for charities that provide public benefit, but whose constitutions may require time-consuming and costly constitutional amendment due to a technical flaw.

OSCR has issued guidance in response to initial fears regarding this “constitutional crisis”. But while its key message to keep constitutions under review is correct, the implication that altering a constitution is straightforward is, perhaps, worrying.

For some charities, the new “reorganisation provisions”, which can streamline the process of bringing their charitable purposes into line with the 2005 Act, may not be available.

Charities established by Act of Parliament, for example, are restricted in their use of this streamlined route. Further specific legislation for some charities may be required, involving a potentially lengthy, expensive and unpredictable parliamentary process.

As well as congratulating OSCR for the publication of the report, the charity sector must also pay tribute to the charities that participated in the pilot.

It has created both a much clearer image of Scottish charity law and a springboard for the sector to flourish. Only 17 years ago, there was little that could be truly called Scottish charity law. As OSCR beds in, problems will be encountered, but the ingenuity of those working in, and with, charities will enable these challenges to be converted into greater public confidence in charity.

The rolling review will examine every charity in Scotland in the next ten years. Well-run charities are already taking steps to ensure they are prepared. Others must take the publication of the report as a call to action.

There are potentially serious – in some cases criminal – consequences in a failure to operate a charity effectively. The report should be welcomed on the whole and its message is clear: now is the time to show OSCR and, more importantly, the public and benefactors, how valuable your charity is.

• Alan Eccles is a charity lawyer in the private client team at Maclay Murray & Spens.