Charities Bill [HL]

My Lords, I am grateful to the noble Lord, Lord Best, for having raised this important issue. It is one that deserves proper consideration. Along with many other noble Lords, I received the briefing from the Independent Schools Council on which some of the arguments and background to this amendment rest. But while I understand the argument and the strength of the argument, I am by no means convinced that this approach is the right way to tackle the problem the noble Lord raises and which needs to be addressed. I say that for three reasons. The first reason is simply that a trustee is a trustee is a trustee, and a trustee must take full responsibility for the operation of the organisation of which he or she is a trustee. To introduce a category of transactions for which trustees are not fully responsible, in that they have to seek Charity Commission advice, is undesirable. We run the risk of having a two-tier type of trusteeship. That is the wrong approach to follow. The second part is the argument advanced by the noble Lord about inequality of arms. On one side are the well resourced, experienced people of the acquiring non-charitable company and on the other are the inexperienced trustees of a failing institution. That is a poor reason for introducing this change in our primary legislation. The fact is that trustees need to inform themselves. In this connection, it is interesting that I have just become a trustee of a charitable foundation. The Charity Commission sent me a most extraordinarily helpful set of documents. I will not quote from them in extenso but there are a couple of paragraphs that show that even if you are the least experienced babe in the woods as far as trustees are concerned, if you just read what the Charity Commission tells you, you will get round the point that the noble Lord made. I shall quote two paragraphs of the letter addressed ““Dear New Trustee””:"““You might find it helpful to make an induction plan identifying and prioritising what you need to do to familiarise yourself with your new role."" You do not need to be a financial or legal expert to run your charity, but you will need to consider carefully when to take specialist advice. While risk of personal liability is small, you are more likely to be at risk if your charity suffers a loss because you didn’t take specialist advice when you should have done””." With this comes an easy-to-read welcome from the Charity Commission. There are a couple of pages but the part that is worth quoting is as follows:"““Your liability as a charity trustee: In principle, you may be personally liable if your charity loses money as a result of a mistake you have made. However, this is unlikely to happen if you have: acted reasonably; worked within the governing document; and taken proper and appropriate professional advice where you don’t know enough to make a decision, or where you are required to by law””." Within the guidance that people receive that is not complicated or difficult to understand. There is every reason to believe that trustees can and should familiarise themselves with their wider and broader responsibilities. The third and more practicable concern I have about the noble Lord’s amendment is that introducing the Charity Commission to the circumstances envisaged in the amendment could make things worse. A failing charity, like a failing company, is always in a weak position and it is ingenuous to suppose that automatic involvement with the Charity Commission will somehow in reality strengthen the position of the weaker company. It takes us into a whole series of other legal and corporate legal concepts, in particular the issue of trading while insolvent. Let us consider the example the noble Lord has given of a school that is no longer able to trade effectively and is therefore being forced to accept an offer from an outside organisation. The fact is that it will not be a question of waiting for a week or two while the Charity Commission decides, but a question of whether the directors or trustees can order the weekly milk, because they will be liable for that if they continue to trade knowing that they will not be able to meet that debt as it falls due. So there is a real danger that we will introduce ossification to the process. Indeed, we might increase the risk of inexperienced trustees being exposed to trading while insolvent claims, which are a very serious breach of company law. In my experience in the corporate sector, speed is of the essence where companies and indeed charities begin to fail. Failure compounds extraordinarily quickly and is catastrophically steep at the end. I feel that the Charity Commission will not be able to facilitate and help that process. My final point concerns the law of unintended consequences. We raise here a particular set of circumstances. I accept what the noble Lord has said about the dangers, but if we were to put that into the primary legislation that we are discussing today, we will be stuck with it for 14 or 15 years until the next charity Bill comes along. I am not quite clear whether the thread that the noble Lord introduces, with the very best of intentions, might not take us in a way that is undesirable. So while I accept that there is an issue, I would hope that it can be addressed by a degree of self-regulation by organisations such as the Independent Schools Council writing to their members offering them a helpline and advice, and telling them of the dangers that they may find themselves in if they begin to fail. In those circumstances, it is much better to have this sort of flexibility rather than the inflexibility of primary legislation which carries with it complications and consequences that today we cannot possibly hope to see through.