OPERATIONAL GUIDANCE

ORDERS AND SCHEMES

PREPARING A DRAFT SCHEME - CONSIDERATIONS TO BEAR IN MIND AND PROCEDURES TO FOLLOW

OG 1 B3 - 22 July

Purpose: to set out what needs to be considered and outline the procedures to follow when drafting a Scheme and sending it to the charity for approval. A flowchart sets out the main stages.

Divisional responsibility

For action:

Charity Support Division

Contents

1. Consideration of charity's requirements
2. Preparing a draft Scheme
3. Settling the draft
4. Sending the draft to the trustees for approval

Meaning of expressions - list of Glossary terms used in this Guidance
Further related information

1. Consideration of charity's requirements

1.1 Proposing a scheme
1.2 Constitutional power of amendment
1.3 Issue of application form
1.4 Responsibility for content of Scheme
1.5 Using an existing model
1.6 Model Scheme not appropriate

1.1 Proposing a Scheme

Trustees who are relatively inexperienced or who have had little or no contact with us may have little idea of what a Scheme is. They may not know whether one is needed or what legal requirements must be met before one can be brought into force. We should bear this in mind and be ready to suggest making a Scheme as soon as it seems from discussion or correspondence that this is what may be needed. Publication CC36 should be issued (unless it is clearly unnecessary).

1.2 Constitutional power of amendment

We should, whenever possible, grant the trustees a constitutional power of amendment subject to limitations, in addition to, or as an alternative to making a Scheme. This should always be considered. OG 1 B1 section 3.2 provides guidance on when we might grant a power of amendment. Whilst this advice is in connection with Orders, the same principles apply to Schemes. When we provide a power of amendment, it will be up to the trustees' legal advisers to draw up the relevant document on each occasion the power of amendment is used. However, if it is not possible to provide a constitutional power of amendment, and we have to make a Scheme, the responsibility for the content of the Scheme is ours: see section 1.4 below.

1.3 Issue of application form

The best stage at which to issue an application form will vary from case to case. In some circumstances, it may be important to obtain an application at the earliest opportunity. In others, it may be better to wait until a fully detailed draft has been prepared.

In general, we need to strike a balance:

• it should not be issued so early that the trustees have no clear idea of what they would be applying for; but

• neither should it be issued so late that the application procedure delays publication if the Scheme goes ahead, or a significant amount of staff time will have been wasted in drafting an abortive Scheme if it does not.

In most cases it will be appropriate to send the form at a fairly early stage with a letter outlining the terms of the proposed Scheme or with a model Scheme and explanatory letter (see sections 1.5 and 1.6 below).

1.4 Responsibility for content of Scheme

We are responsible for the legal and practical effect of a Scheme and for deciding its final content. In practice, however, we aim to agree its terms with the trustees. To that end, we will generally seek to reach agreement with the trustees on its broad outline before inviting an application.

We can accept drafts submitted by trustees only if they comply with our usual requirements.

1.5 Using an existing model

Where it is not appropriate to grant the trustees a power to amend their charity's governing document, we may be able to use an already existing model. In this case, the trustees might find it easier to understand what we are proposing if we send them a copy of the model with publication CC 36. (An amending clause should be added if appropriate.) We should explain that:

• the model is only an example of what is proposed, based on the information available at the time;

• it may well need to be altered to fit the particular needs of their charity; and

• once this has been done, we will prepare and send them a draft Scheme.

We should encourage the trustees to comment on the model and assure them that their views will be considered very carefully.

1.6 Model Scheme not appropriate

A model Scheme will not always be appropriate. Where it is not, we should normally set out in writing the provisions which it seems to us the Scheme should contain. We should describe these in some detail. In this way, the trustees will know exactly what we propose.

Even where there is no suitable model, a Scheme may closely follow one which has been made for another charity. Trustees may find a copy of such a Scheme helpful. But, again, our policy on granting powers of amendment will need to be borne in mind. Where necessary, the fact that a power of amendment would be included in a new Scheme, and its scope, should be drawn to the attention of the trustees.

In some particularly difficult cases, we may need to consider preparing a fully detailed draft before inviting an application - particularly where the Scheme will contain only a few clauses. This can sometimes avoid lengthy and complicated correspondence.

When a Scheme other than a standard model Scheme is being sent, the action to be taken should normally be cleared with a senior officer.

2. Preparing a draft Scheme

2.1 When to prepare
2.2 Model provisions
2.3 Fully regulating Scheme to replace previous provisions
2.4 Secondary trusts
2.5 Metrication

2.1 When to prepare

A draft Scheme should normally be prepared after the trustees have commented on a model or on proposals set out in a letter (unless, exceptionally, it was prepared at the outset because of particular difficulties).

2.2 Model provisions

Wherever possible, the standard model Scheme clauses set out in the Basic Drafting Guide should be used - modified, if necessary, to include a power of amendment.

2.3 Fully regulating Scheme to replace previous provisions

A fully regulating scheme should replace fully all previous provisions in earlier governing documents. In the normal course of events this is a reasonable assumption to make, but we must be alert to the grey areas where there might be some doubt, for example, as to whether or not a particular provision has been overturned. This will be particularly relevant with:

• gift-overs / secondary trusts; and

• prohibitions on the use of certain powers.

If we do not specifically cover these type of provisions (where they are present in the charity's existing trusts) in a fully regulating Scheme then there will be some doubt as to whether they remain in force.

For example, if we are making a fully regulating Scheme for a charity whose governing document previously included a prohibition on a particular activity, we should be careful to ensure that the prohibition is either confirmed in our Scheme, or explicitly overturned. By contrast, where we are providing a new set of objects, then there is no need explicitly to say that the old objects shall no longer take effect.

2.4 Secondary trusts

The secondary trusts are part of the trusts of a charity. It could be argued that the use in a Scheme of the expression "fully regulating" could be interpreted that any secondary trusts not mentioned in the "fully regulating" Scheme are terminated. The counter-argument is that these words are often included in Schemes without giving due consideration to their implications, and they should not, therefore, be given any weight in deciding what the totality of the trusts of a particular charity are, after the Scheme has been made.

Schemes altering the primary trusts of charities should make clear the fate of any secondary trusts associated with the failure of the original primary trusts. If they do not, there will be scope for legal argument as to the continuing effectiveness of the secondary trusts.

This applies in any case where the wording of the failure condition associated with the original primary trusts is capable of also applying to the substituted primary trusts.

2.5 Metrication

The effect of the European Community of Measurements Directive 1989 needs to be borne in mind when drafting a Scheme which refers to measurements of land (either in the body of the Scheme or in a Schedule). From 1 January 1995 these have had to be metric.

3. Settling the draft

The first, or manuscript draft of a Scheme should be settled by the person who will seal it.

An accurate typed version should then be produced.

4. Sending the draft to the trustees for approval

We should normally send a copy of the typed version of the draft Scheme to the person corresponding with us for consideration by the trustees.

We should ask the trustees to approve the draft and to supply any information needed to complete it. This might include details of people to be appointed as trustees by the Scheme, various minor details which only the trustees can provide or information for inclusion in a Schedule. It is important that we ask for all missing information at this stage. A protracted correspondence is ineffective and can result in trustees refusing to co-operate.

A full Schedule should no longer be included as a matter of course in a fully regulating Scheme or a Scheme appointing trustees. But, where a Schedule is necessary, we need a proper description of the charity's assets. A Schedule certificate should, therefore, be attached to the draft. This will need to be signed by someone who has a competent knowledge of the charity's details.

However, where the Scheme is straightforward (particularly where it is very short) and there is no doubt that the trustees will agree its content, the consideration stage may be omitted. Provided a valid application has been made, the draft Scheme may be sent to the correspondent with instructions for publication. Where necessary, a Schedule certificate should be attached to the draft and personal notice issued.

The following words and phrases are defined in the Glossary of Terms:

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trustees

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