New Bill set to make social investment easier

New legislation designed to protect charities from abuse and give them the power to make social investments has taken its first step on the path to becoming law.

The Charities (Protection and Social Investment) Bill was introduced in the House of Lords on 28 May. Its measures include:

  • adding certain criminal offences to the criteria that automatically disqualify a person from being a charity trustee in England and Wales, extending this automatic disqualification to senior management positions in charities and giving the Charity Commission a new power to disqualify an unfit person in certain circumstances from being a charity trustee or senior manager in a charity for up to 15 years, subject to safeguards
  • strengthening the powers of the Charity Commission, enabling it to:
    • direct that a charity be closed down after an inquiry, where that would be more appropriate than attempting to restore the charity to health
    • issue a statutory warning where it considers there has been either a breach of trust or duty or other misconduct or mismanagement
    • disqualify a person who is unfit to serve as a charity trustee in certain circumstances, including a conviction abroad conviction abroad for bribery or terrorist financing in connection with a charity or similar body or if they have been found by HM Revenue & Customs not to be a fit and proper person to be a manager of a body or trust
    • remove a disqualified trustee from a charity where they have not stepped down
  • giving charities a new power to make social investments – investments aimed at delivering both charitable objectives and generate funds for future activities – and setting out the duties trustees must comply with when making social investments.

William Shawcross, chair of the Charity Commission said: “This is a vital piece of legislation if we are to have the powers that we need to stop individuals abusing charities. We must be able to take action where abuse occurs. This Bill is also good news for charities wanting to make social investments.”

But John Low, chief executive of the Charities Aid Foundation, warned: “The trust and confidence of the public is vital to charities, and the Charities Bill…has the potential to boost this by enhancing the protection of charities from abuse.

“Government will now need to work with voluntary organisations to ensure that this legislation succeeds without introducing onerous restrictions on the good work our charities do.”

The planned reforms around social investment will clarify trustees’ powers and duties in this area, which should give them greater confidence in exploring and making use of this opportunity to use charity funds in a way that delivers financial returns while also bringing about change.

However, charities will need to think carefully about whether social investment is right for their organisation and be mindful of the proposed duties for trustees in relation to such investments.

These include considering whether advice is needed before making a social investment, considering any advice they do obtain, satisfying themselves that the investment is in the charity’s best interests and reviewing social investments periodically. For more information on how Moore Thompson can assist charities in this area, please contact us.