OG1 B1 - PROVIDING TRUSTEES WITH A POWER OF AMENDMENT

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OPERATIONAL GUIDANCE

ORDERS AND SCHEMES

PROVIDING TRUSTEES WITH A POWER OF AMENDMENT

OG 1 B1 – 27 February 2007

Purpose

To explain what power trustees may have to amend the trusts of their charity and our policy in granting them further powers by Scheme or Order.

Functional responsibility

For action

Legal and Charity Services

Contents

1. Trustees' existing powers
2. New charities – power of amendment and dissolution
3. Our policy on conferring a power of amendment by Order or Scheme
4. Using a section 26 Order to confer a power to amend the governing document of a charity
5. How is the authority given by a section 26 Order or Scheme put into practical effect?
6. What provisions cannot be changed under a power of amendment?
7. Practical aspects of using the power of amendment
8. Approval and scrutiny of amendments
Glossary of Terms used in this Guidance

Index to further related information


The Law	Refer to a lawyer	Refer to an accountant

NB. Caseworkers should note that "Act of Parliament" in this series of OGs means an Act of Parliament other than those referred to in section 26(6) of the 1993 Act.

1. Trustees' existing powers
	1.1 The law 1.2 Where the power already exists 1.3 No existing power or power insufficient

	1.1 The law
	Trustees may amend the trusts of their charity without the authority of a Scheme or Order:
	in accordance with any power of amendment in the charity's governing document (the exercise of which may, in certain circumstances, require our consent);
	under the Small Charities provisions in ss.74 to 75 of the 1993 Act (with our concurrence); or
	in the case of a charitable company, under various provisions of the Companies Act 1985, but our prior written consent will be necessary in some cases under s.64 of the 1993 Act. (See OG 47 B2).

	1.2 Where the power already exists
	Depending on the constitution of the charity and the terms of the power, amendment will usually be by:
	a decision of the trustees. The constitution may require that effect should be given to the decision by means of a deed executed by the trustees; or
	a resolution of the members of the charity.
	The power may be qualified as to:
	which provisions may be amended; and
	whether or not our prior approval is required.

	1.3 No existing power or power insufficient
	If trustees have no power of amendment or wish to go beyond their powers, (unless s.74 or s.75 of the 1993 Act is relevant and applies to the charity), they can apply:
	to us for a s.26 Order, which in most cases is likely to be the route to follow ; or
	to us or the Court for a Scheme.

2. New charities – power of amendment and dissolution
	In future, all model governing documents prepared or approved by us, will include a power of amendment and of dissolution. This reflects our current policy on conferring powers of amendment on trustees.

3. Our policy on conferring a power of amendment by Order or Scheme
	3.1 Policy generally 3.2 When might we grant a power of amendment?

	3.1 Policy generally
	The Commission's policy when conferring a power of amendment is to give the trustees wide discretion within the legal framework to amend the administrative provisions in their charity's governing document. This will enable trustees to acquire for themselves a wide range of powers which they regard as necessary in the interests of the charity. Model powers are illustrated in OG 1 D1, OG 1 D2 and OG 1 D3.

	3.2 When might we grant a power of amendment?
	As a matter of policy we should aim to provide the trustees with a power of amendment to enable them to introduce the powers they are seeking. This will not of course be appropriate where the powers which the trustees wish to adopt fall outside the scope of the power of amendment (such as changing the charity's purposes) or which will require our further written consent (such as powers to sanction conflict of interest). In a few cases trustees may wish to have merely the powers they have requested and will not want to have a general power of amendment. We should not seek to persuade them to take a general power of amendment if having had the matter raised with them they are not interested in acquiring such a power. The following approach in granting such a power should be adopted:
	In the first instance, if a charity asks us to confer a power of amendment by Order or Scheme, we should be willing to provide this power: model Orders D2 or D3 can be used in these cases. The trustees should be clear about the limitations of the power (see above) and we would need to be satisfied that the provision of such a power would be expedient in the interests of the charity - in practice, it is likely that this will be the case if the change the trustees wish to introduce falls within the scope of the power and doesn't need our further written consent;
	If trustees request the authority of an Order to confer a specific or general power, we should suggest to them that we provide them with a general power of amendment instead. This would enable the trustees to use the power of amendment to give themselves not only the particular powers which they have requested but also additional powers in the future which they may feel appropriate. This option will not of course be appropriate if the authority is being sought for something which could not be sanctioned by the use of a power of amendment, such as for example the remuneration of a trustee altering or extending the charity's purposes.
	Nor will it always be appropriate if the authority is being sought for something which will need our prior written consent - see bullet point below and section 6.3. In such circumstances, it may be more helpful to provide the requested amendment by specific authority, as well as providing a general authority for future use. Section 4 of OG 1 A1 provides example of authorising specific transactions.
	Some trustees may, notwithstanding our suggestion, prefer to have an Order giving them the powers they requested. It may be also necessary to provide these powers by Order because the power of amendment would not be sufficient to enable them to adopt the powers they were seeking, without our prior written consent, for example the remuneration of a trustee. In these circumstances we should be willing to give them the particular powers they need but in addition (unless the trustees specifically state that they do not want this further power) we should provide the charity with a power of amendment for future use.
	Schemes made under ss. 15(1), 15(3) and 17 of the 1993 Act should not include a power of amendment.
	However, where a power of amendment is appropriate, we can confer such a power when we make Schemes under other legislation, such as s.2 of the Reverter of Sites Act 1987 (see OG 27) and s.96(3) of the National Health Service Act 1974.
	Section 4 of OG 1 A2 provides guidance on our statutory powers including Schemes made under ss.15, 16 and 17 and other provisions.

4. Using a section 26 Order to confer a power to amend the governing document of a charity
	4.1 Previous policy 4.2 New policy

	4.1 Previous policy
	In the past, we have been prepared to make changes to an existing governing document or to confer a power of amendment by Scheme only.

	4.2 New policy adopted in 2001
	We have reconsidered our policy in this respect. We are satisfied that under the provisions of s.26(2) of the 1993 Act, giving the trustees a constitutional power of amendment, subject to limitations, would be bestowing a "more general authority" in the administration of a charity. Our policy will be to limit the scope of any power of amendment we confer to that outlined in this OG.
	OG 1 A1 section 3 provides guidance on using our powers under s.26 of the 1993 Act.
	OG 1 D1 sets out a model form for such an Order.
	OG 1 A1 section 4 explains when we can we can introduce the changes to many provisions in a governing document by Order under s.26.
	Where the amendment falls outside the scope of our powers under s.26, it may still be appropriate to invite the trustees to apply for a Scheme in order to introduce the changes. OG 1 A2 explains when a Scheme will be appropriate. Section 5 of that OG explains when it would be more appropriate to make a Scheme to introduce a power of amendment.

5. How is the authority given by a section 26 Order or Scheme put into practical effect?
	5.1 General power of constitutional amendment 5.2 Specific constitutional changes

	5.1 General power of constitutional amendment
	In granting a general power of constitutional amendment, it is open to us to impose special constitutional arrangements which the trustees must observe whenever the power of amendment is used to change or add to the powers available to the trustees. Such arrangements will usually cover the length of notice required for calling a meeting and / or the size of the majority required for the exercise of the power.
	Our general approach should be that the use of this power could potentially introduce significant administrative changes to the charity and is therefore an important power. The provisions relating to the calling of meetings and making of decisions should therefore reflect this degree of importance. For example, as a general rule it would not be appropriate for the power to be exercised where a meeting can be summoned at short notice and / or decisions can be made by a simple majority.
	In the light of this, where the existing constitutional arrangements for calling meetings and making decisions are sufficient to reflect the importance of the use of a power of amendment, we need not include further constitutional requirements in our Order or Scheme conferring the power of amendment. But where the arrangements are not in our view adequate for the exercise of this power, we should always consider including specific constitutional requirements in our Order or Scheme. For example, it will rarely be appropriate to give a power of constitutional amendment to a simple majority of the charity trustees. Accordingly, this power might be accompanied by directions about notice, and /or the need for a qualified majority.
	Possible options include the following examples:
	requiring a qualified majority (eg two-thirds or three-quarters majority of those voting on the question);
	requiring a specific length of notice for the meeting at which the issue is to be discussed;
	requiring the notice to set out the terms of the amendment to be proposed
	These options are included in the model drafts in OG 1 D1 and OG 1 D2.
	Similarly, where a charity has a membership structure, the exercise by the trustees of the power of constitutional amendment might be made subject to the approval of a [qualified majority of] the members of the charity present and voting at a general meeting.
	All this will depend on the nature of the charity and its constitution.

	5.2 Specific constitutional changes
	The above arrangements are not so important when we are authorising a specific constitutional change. We will already be satisfied that the change is expedient in the interests of the charity. The mechanics of implementing the constitutional change are then less significant than they would be if we were not involved in the detail.
	However, where a charity has a membership structure, caseworkers need to ensure that those members are consulted when we authorise a specific constitutional change. We can require the trustees to hold a meeting of the members before or after the Order is made so that we can ensure that the amendment receives the support of, for example, two thirds of the members present and voting.
	The relevant model Orders (D2) and (D3) provide the trustees with powers to make the specified changes within 6 months of the date of the Order.
	If the charity is registered, the trustees should then promptly send us a copy of any constitutional amendment made under the authority of the s.26 Order, and keep a copy of any such amendment with the governing document.

6. What provisions cannot be changed under a power of amendment?
	The restrictions on the power of amendment fall into two categories: those provisions which cannot be changed at all in reliance on the power and those which require our prior consent before taking effect. The first category prevents changes which would go beyond the scope of the statutory limits on our Scheme and Order making powers. The second category prevents trustees from making changes which either they have no constitutional power to make, without such consent, or which cover issues which we need to control for policy reasons

	6.1 Changes which cannot be made by using the power of amendment: Orders and Schemes 6.2 Additional restrictions on the power of amendment granted by Order 6.3 When must the trustees obtain our prior written approval before making any amendment? 6.4 Content of Order or Scheme clause

	6.1 Changes which cannot be made by using the power of amendment: Orders and Schemes
	The following provisions apply both to a power of amendment made by a s.26 Order and a power of amendment made by Scheme:
	The trustees must not make any amendment which would have the effect of:
	altering or extending the charity' s purposes (a further Scheme would be needed in such cases);
	authorising the transfer of the charity's property to another charity if that would have the effect of altering or extending the purposes of the first-mentioned charity (again, a Scheme would be necessary);
	making the charity cease to be a charity at law. (This prevents the trustees from carrying out, for example, any inappropriate trading or political activities);
	altering the power of amendment.

	6.2 Additional restrictions on the power of amendment granted by Order
	The following additional restrictions apply where the power of amendment is made by a s.26 Order:
	The trustees must not make any amendment which would:
	cut across an express prohibition in an Act of Parliament or in the trusts of the charity;
	authorise the transfer of the charity's property to another charity if that would have the effect of cutting across an express prohibition in an Act of Parliament or in the trusts of the transferring charity.

	6.3 When must the trustees obtain our prior written approval before making any amendment?
	The trustees must obtain our prior written approval if they want to use the power of amendment conferred by Order or Scheme:
	to give a power to determine the analysis of investment returns between capital and income (ie to adopt a total return approach - see OG 83);
	to transfer the charity's property to another charity if that would have the effect of benefiting all or any of the current trustees OR their successors
	to affect the trustees' personal interests (for example to vary any power of the trustees to remunerate the trustees, or to effect trustee indemnity insurance, to restrict any provisions defining the trustees' liability, or to sell shares or other property to the charity). The requirement here for our consent reflects the legal principle that, without appropriate authority, a power of amendment in the governing document of the charity may not be used to confer a benefit upon the trustees: re French Protestant Hospital [1951] Ch.567. This applies whether the power of amendment is exercised by the trustees themselves or by others, for instance, by members of the charity;
	in a way which would restrict the existing right of any person (other than the trustees) to appoint or remove a charity trustee, or trustee for the charity, or to intervene in the administration of the charity, without the consent of that person. We may judge in some more controversial cases a Scheme might be the more appropriate route;
	to vary the name of the charity (see OG 18 Names of charities). This is to give us the opportunity to prevent a charity from adopting a name which might be too like that of another. It also ensures that, where the provisions in a charity's existing governing document already require our consent to a change of name, the trustees cannot remove this requirement;
	to enable them to spend permanent endowment, or to capitalise income.
	In practice, we will rarely give such authority and legal and accountancy advice should be obtained where we are approached for this type of consent.

	6.4 Content of Order or Scheme clause
	Model Order and Scheme clauses to enable trustees to amend certain provisions of their charity have been drafted to take into account the restrictions and conditions which the Commission consider appropriate. This wording is set out in OG 1 D1, OG 1 D2 (Orders) and OG 1 D6 (Schemes).
	Where the use of the clause is causing difficulties for a charity, this should be brought to the attention of Policy and Effectiveness Directorate (through the Policy Referrals System) who are responsible for monitoring our policy on this issue

7. Practical aspects of using the power of amendment
	7.1 Requirement to keep a permanent record of changes 7.2 Where the governing document of a charity is a trust deed

	7.1 Requirement to keep a permanent record of changes
	It is important that a permanent record is kept of all changes to the governing document of a charity. For this reason, each model provides that a copy of the Scheme, or any Order made under s.26 and of any amendment made in exercise of any power of amendment given to the trustees by a Scheme or an Order, should be kept with the original governing document of the charity. The attention of the trustees should be drawn to this clause when the Scheme or Order is finally released.
	OG 1 A1 section 10 provides guidance on where to file Orders.

	7.2 Where the governing document of a charity is a trust deed

	Specific amendments
	Where we authorise specific amendments either by s.26 Order or Scheme, it will be sufficient for the trustees to pass a resolution to put these changes into effect. The trustees should follow their normal arrangements for decision making. In accordance with the terms of the Order, this resolution must be made within 6 months from the date of the Order.
	The trustees must promptly send us a certified copy of the resolution when the amendment(s) or addition(s) have been made.

	General power of amendment
	Where we provide a general power of amendment subject to limitations, either by s.26 Order or Scheme, each time this power is exercised, the amendment(s) or addition(s) should be made by deed under the authority of a resolution passed by a majority of the trustees acting in accordance with their normal arrangements of decision making.
	The trustees must promptly send us a certified copy of the documentation when the amendment(s) or addition(s) have been made.
	OG 1 D1, OG 1 D2 and OG 1 D6 provide model wording for use when making amendments using s.26 Orders or Schemes.

8. Approval and scrutiny of amendments
	8.1 When our approval is necessary 8.2 Amendments which do not require our approval 8.3 Scrutiny of amendments

	8.1 When our approval is necessary
	When exercising a power of amendment, trustees must obtain our prior approval to any amendment which makes changes to certain provisions (see section 6.3 above).
	They must also notify us of all amendments made under these arrangements.
	Requests for prior approval under these arrangements should be considered in the light of our current policy on the particular power the trustees wish to vary. For example, the current guidance on the provision of indemnity insurance is contained in OG 100.
	Where necessary, we should suggest alterations to the proposed amendment to bring it into line with current guidance. Once we are satisfied that the proposals are acceptable and appropriate, we should send a letter of approval requesting a certified copy of the resolution when it is passed. The letter should be signed by a PB3.

	8.2 Amendments which do not require our approval
	Amendments other than those referred to in section 6.3 do not require our prior approval. However, the trustees must still notify us of all amendments made under these arrangements.

	8.3 Scrutiny of amendments
	When we receive certified copies of documentation relating to amendments or additions caseworkers should normally check that:
	there is an appropriate power of amendment;
	this power is sufficient to allow the amendments the trustees have made;
	our written consent has been given where necessary.
	These checks will not be necessary where the documentation makes it clear that the trustees have attended to these matters and where the issue or case is uncontroversial.
	For example, where the copy of the resolution cites the power of amendment on which the trustees are relying, caseworkers can reasonably assume that it is accurate and that the trustees are acting within their powers.
	As far as checking the wording of the resolution and the propriety of the trustees' procedures in making the changes is concerned, caseworkers should use their discretion. It is not intended that caseworkers should check these aspects of every amendment which we receive as a result of the trustees' duty to notify us in conjunction with the governing document. For example, we would not usually check amendments for procedural or drafting accuracy where they appear to be uncontroversial and concerned only with routine aspects of the administration of the charity.
	However, caseworkers should be on the lookout for amendments which would:
	require our consent; or
	not be permitted within the scope of Section 26.
	Certified copies of documentation relating to amendments or additions should be placed on the Key Document file.

Glossary of Terms used in this Guidance
	1993 Act
	cy-pres
	nominated trustee
	trustees

Index to further related information