Charities Bill [HL]

The purpose of new Section 69F, as inserted by paragraph 1 of Schedule 6, is to set out the legal consequences of the registration of a new CIO. The CIO will not exist until it is registered, but it is possible that the prospective charity trustees of the new CIO have already started to collect funds before it   actually comes into existence. Subsection (3) is intended to facilitate the transfer to the CIO of any property which the people setting it up may be holding, pending registration by the commission. The amendment aims to ensure that the CIO is liable on any pre-incorporation contract into which the prospective trustees may have purportedly entered into on its behalf. I say ““purportedly”” because I understand that it is not legally possible to enter into a contract on behalf of a person or body that does not exist at the time the contract is entered into—I am sure that that makes sense. The Government consider that that would go too far. Under company law, liability under a pre-incorporation contract rests with the people who entered into the contract, as per Section 36C of the Companies Act 1985. There is no automatic transfer of liability to the company after it has been formed. The pre-incorporation contractor can, by negotiation with the other party to the contract, or with the company after it is formed, or both, ensure that he is protected from personal liability under the contract if the intention is that the company should be the contracting party after it has come into existence. The noble Lord will be able to see from the illustrative CIO regulations, which, as ever, can be found on the Home Office website, that a similar regime is contemplated for the CIO. As is the case with companies, we do not consider it appropriate that the burden of pre-incorporation contracts should be automatically assigned to the CIO on its formation, regardless of the individual circumstances. I hope that that explains the position and I invite the noble Lord to withdraw his amendment.