OG1 A1 - ORDERS UNDER S.26 OF THE CHARITIES ACT 1993

In this section...

OPERATIONAL GUIDANCE

ORDERS AND SCHEMES

ORDERS UNDER SECTION 26 OF THE CHARITIES ACT 1993

OG 1 A1 – 27 February 2007

Purpose

This OG series explains:

our policy on the use of our Order making powers under section 26 of the 1993 Act and when it is appropriate to use them.

an overview on Schemes and explains when a charity might need a Scheme.

who may apply for a Scheme.

preparing a draft Scheme.

whether a Scheme needs to be published.

what needs to be done to bring a Scheme into effect.

There is a flowchart which sets out how to identify the correct power to use to alter a governing document.

Note. This guidance will change when further parts of the Charities Act 2006 come into force

Functional responsibility

For action

Charity Services
Legal Division

Contents

1. Introduction
2. Our powers under section 26 of the 1993 Act
3. Using our section 26 powers
4. What can a section 26 Order be used for?
5. Can section 26 Orders be made instead of resolutions under the small charities provisions?
6. When is it appropriate to give advice under section 29 of the 1993 Act instead of making a section 26 Order
7. Procedures for making a section 26 Order
8. How is the authority given by a section 26 Order put into practical effect?
9. When the Order is made
10. Filing Orders
Glossary of Terms used in this Guidance

Index to further related information


The Law	Refer to a lawyer	Refer to an accountant

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

1. Introduction
	This OG sets out the principles involved in identifying when we can, and should, make an Order under section 26 of the 1993 Act (section 26 Order). Section 2 explains our powers under section 26 and Section 3 provides examples of when those powers can be used.
	This guidance only covers with our powers to make section 26 Orders. It does not cover Orders made under other sections of the 1993 Act, for example:
	to vest land in the Official Custodian (section 21);
	the appointment or removal of trustees (section 18).

2. Our powers under section 26 of the 1993 Act
	2.1 What are our powers? 2.2 What is an express prohibition? 2.3 What about permanent endowment and total return?

	2.1 What are our powers?
	A section 26 Order will authorise trustees to carry out an act that they otherwise have, or may have, no power to do. It can also provide a more general authority that can affect the way the charity operates. The authority it provides can only be discretionary: trustees must be able to choose whether or not to exercise it.
	We can only make a section 26 Order if we are satisfied that to do so is ‘expedient in the interests of the charity’, ie that the best interests of the charity are served by allowing a particular course of action.
	A section 26 Order can include duties and directions that must be complied with if the powers it gives are exercised but it cannot impose duties or directions on trustees that do not relate to those powers. Section 7 provides guidance on how trustees bring into effect a power given by a section 26 Order.
	The scope of section 26 is wide but not unlimited. We cannot make an Order to:
	authorise the trustees to do anything that overrides an "express prohibition", see section 2.2; or
	authorise the trustees to do anything to extend or alter the purposes of the charity; or
	impose duties or directions on the trustees that do not relate to the powers given in the Order.
	In addition, we should not make an Order where we consider it desirable to preserve the right of appeal that is associated with the making of a Scheme. For example, if the proposals involve the removal - against their will - of someone's right to appoint a trustee of the charity. In all these cases, we should consider making a Scheme.
	Sections 3 and 4 of this OG and section 2 of OG 1 A2 provide guidance on these points and whether a Scheme or an Order will be appropriate.

	2.2 What is an express prohibition?
	Section 26(5) of the 1993 Act states that: ‘no such order shall authorise the doing of any act expressly prohibited by Act of Parliament or by the trusts of the charity or shall extend or alter the purposes of the charity’ (express prohibition).
	Essentially an express prohibition in the trusts of a charity means that its founder made it clear in the governing document that some particular power or type of power is not to be available to the trustees.
	An express prohibition clearly exists where negative wording is used (ie, "the trustees shall not."). However, it is not simply a matter of whether negative wording is used. For example, the phrases:
	"no trustee shall be paid"; or
	"all trustees must act gratuitously";
	are both clear express prohibitions on the availability of any power to pay trustees.
	As shown below, the use of positive language (particularly in the context of administrative provisions) does not always amount to an express prohibition against the trustees acting in other ways.
	It will not always be clear whether a particular constitutional restriction is intended as an express prohibition or is simply an integral part of the definition of a particular power. In any cases of doubt legal advice should be sought.

	2.3 What about permanent endowment and total return?
	Provisions establishing permanent endowment are an integral part of the structure adopted by the founder of the charity, but they are not part of the charity's purposes. Our view is that restrictions on the expenditure of capital (including permanent endowment) contained in a charity's governing document are administrative provisions dealing with the mechanics of how property devoted to charitable purposes should be applied.
	It follows that we regard Orders that permit the adoption of a total return policy (see section 4.1) as dealing with the mechanics of managing permanent endowment. However, an Order cannot be used to overturn the general principles establishing permanent endowment.
	This is consistent with the approach in OG 83 Endowed charities: a total return approach to investment.
	Note. Sections 75, 75A and 75B of the 1993 Act, inserted by section 43 of the 2006 Act, will substantially change the rules about spending permanent endowment when they come into force early in 2008. They are also an indication that Parliament does not intend that the statutory provision that enables unincorporated charities to "modify powers or procedures" in their governing document, referred to in section 3.2 is not to be used to allow trustees to spend permanent endowment.

3. Using our section 26 powers
	3.1 When should section 26 Orders be made? 3.2 Does the charity have a power of amendment it can use? 3.3 When the charity does not have a sufficient power of amendment 3.4 Cases of doubt

	3.1 When should section 26 Orders be made?
	Section 26 Orders can be used to provide general powers as well as authority for specific transactions. Examples of general powers and specific authorities are given at section 4 below.
	Put simply, we can consider making a section 26 Order when we are approached by the trustees of a charity who want to take a particular course of action that their governing document does not give them power to do and they cannot amend the governing document to give themselves such a power. Consequently section 26 Orders should usually be made in preference to a Scheme. The process is quicker and less burdensome than the Scheme making process and provides trustees with authority that they need faster. OG 1 F1 sets out in a flowchart when a Scheme or Order is appropriate.
	Consequently our first action to any request from trustees for power to take a particular action is to ask ourselves-

	3.2 Does the charity have a power of amendment it can use?
	As a first step, before considering a whether to make a section 26 Order or a Scheme we should check that the charity concerned cannot take the action it proposes by using:
	a power of amendment in its governing document;
	the provision in section 74D of the 1993 Act, inserted by section 42 of the 2006 Act (the section 74D provision) that enables unincorporated charities to "modify powers or procedures" in their governing document;
	the statutory power of amendment in company law (see OG 47);
	the provisions in sections 74 and 75 of the 1993 Act (the small charities provisions)(see OG 201).

	3.3 When the charity does not have a sufficient power of amendment
	If none of the options in section 3.2 can be used, a change to the trusts of a charity should normally be made by, or under the authority of, a section 26 Order unless the change:
	does or may affect the charity’s purposes; or
	does or may authorise something that is subject to an express prohibition;
	requires the trustees to do something, rather than give them a power they may or may not use;
	has an effect that makes it expedient to preserve the statutory right of appeal to the court against the change. Schemes can be appealed to the court (see section 3.6 of OG 1 A2), however, there is no right of appeal against the making of an section 26 Order.
	In these cases we will have to consider whether we should make a Scheme: see OG 1 A2. The right of appeal is likely to be more significant in sensitive or contentious cases, for example where people are being deprived of rights in connection with the administration of the charity against their will (such as the power to appoint a trustee).

	3.4 Cases of doubt
	In cases where there is a genuine doubt whether giving a particular power:
	may involve an alteration of the purposes of a charity; or
	may cut across an express prohibition;
	caseworkers should get legal advice to clarify whether we should make a Scheme to avoid any risk of an Order being ultra vires.

4. What can a section 26 Order be used for?
	This section sets out our general principles for deciding, on the basis of a case made by trustees outlining their needs, if an Order is appropriate.
	In limited cases a section 26 Order will be sufficient to authorise permanent changes to the trusts of a charity, most notably in the examples given in section 4.1. However such Orders are more likely to be made to authorise "one-off" transactions in the specific cases listed in section 4.2.

	4.1 General powers 4.2 Specific transactions

	4.1 General powers
	Examples of general powers we can provide include:
	providing a power to adopt a total return policy (see OG 83).
	giving the trustees of almshouse charities the power to introduce weekly maintenance contributions for residents.

	4.2 Specific transactions
	Examples of situations where we can provide authority for specific transactions include (as set out in the model Orders in OG 1 D3 and D5):
	to authorise a course of action when one or more of the trustees are faced with a conflict of interest, for example, where:
	a trustee proposes to buy property from the charity, or proposes to sell his or her own property to the charity;
	it is proposed to pay trustees (so long as such payments are not prohibited by the trusts;
	to provide a power to spend capital, usually on terms of replacement;
	to provide additional powers not currently available in the governing document to deal with a specific situation but not otherwise. For example:
	to enable the trustees to appoint individuals as additional trustees. This power will be useful where the governing document prevents the exercise of the power under the Trustee Act 1925 to appoint new trustees. (NB this power is different from the power in section 18 of the 1993 Act that involves us in actually appointing named trustees);
	to authorise a particular borrowing (see OG 22 B1 section 1);
	to authorise the trustees of a charity to transfer its property to another charity. In such cases the effect of any such transfer should not alter the purposes for which the property of the original charity may be used, or cut across any express prohibition. Consideration should be given to including in any such Order directions relating to the preservation of any permanent endowment of the transferor charity. (OG 1 D5 provides a model Order);
	to authorise a payment as being ‘expedient in the interests of the charity’ (see OG 11 B1); for example:
	an additional severance payment to an employee made redundant that might be over and above the legal requirement and not within the express or implied terms of the charity's governing document; or
	a proposed gratuity to a retiring trustee where anything other than a nominal gift is to be given (see OG 92 C10);
	to authorise a proposed compromise where the trustees have a personal interest in the claim being compromised.
	These are only examples; the list is not intended to be exhaustive. When considering making an Order, caseworkers will need to refer to the relevant operational or other guidance to decide if it is expedient in the interests of the charity.

5. Can section 26 Orders be made instead of resolutions under the small charities provisions?
	We can make a section 26 Order for charities that are also within the scope of the small charities provisions provided:
	a) the Order is in relation to issues that are within our powers under section 26; and
	b) it is a more efficient use of caseworking time to do so.
	OG 201 provides guidance on the small charities provisions. We can make Orders, where appropriate, instead of resolutions under section 74(2) (a) and (b) the trustees may resolve to transfer the charity's property to another charity or charities, provided certain conditions are met. (See OG 201 B1 section 2).
	However, our section 26 powers are not as wide as the scope and the powers available to trustees under section 74. For example, a section 26 Order cannot be used instead of section 74 procedures to:
	alter or extend a charity's purposes;
	authorise the transfer of a charity's property to another charity if that has the effect of altering or extending the purposes of the first-mentioned charity of cutting across an express prohibition;
	cut across an express prohibition.
	In the case of small charities, where the trustees' proposals go beyond what we can authorise by a section 26 Order, section 74 provides the trustees with a better option than a Scheme.
	The procedural requirements in section 74 are not relevant if a section 26 Order is being made.
	OG 1 D5 provides a draft Order to authorise a transfer of a charity's property to another charity.

6. When is it appropriate to give advice under section 29 of the 1993 Act instead of making a section 26 Order
	Where we, and the trustees, have doubts about the trustees' power to carry out a particular transaction we should make a section 26 Order if the circumstances allow.
	However, if we consider that the trustees do have the power to carry out a particular transaction, but they are doubtful, then written opinion and advice under section 29 is more appropriate.

7. Procedures for making a section 26 Order
	7.1 Application 7.2 Publicity 7.3 Right of appeal 7.4 Discharging an Order under s.89(3) of the 1993 Act

	7.1 Application
	There is no formal application procedure. However, before we make a section 26 Order we should make sure that any request for it comes from a person suitably authorised to apply on behalf of the charity’s trustees, for example:
	the registered correspondent of the charity;
	an officer of the charity, such as the chair, treasurer or secretary; or
	solicitors acting on behalf of the trustees.

	7.2 Publicity
	There is no requirement for publicity to be given when we make section 26 Orders. However, we can ask trustees to give publicity to any proposal to make an Order, and under section 89(2) of the 1993 Act we can require publicity to be given to an Order which has been made.
	For example, we may wish to give publicity to Orders where the potential for wider public involvement may enhance the quality of a particular decision or help to dispel fears or possible criticism of the trustees or ourselves. Such cases may be (but not necessarily exclusively) complex, controversial or novel.

	7.3 Right of appeal
	There are no rights of appeal to the High Court against the conferring of powers or authority by Order. OG 94 provides guidance on requests for Reviews of Decisions of the Commission and OG 94 B1 on how to deal with requests for review.

	7.4 Discharging a section 26 Order

	When we have been misled into making a section 26 Order
	We can discharge a section 26 Order under section 89(3) of the 1993 Act within twelve months after it is made, if we have been misled into making it.
	A Scheme is necessary to set aside the authority after the twelve month period has expired (because it is necessary to impose a positive duty on the trustees), and even then the recall will not affect the propriety of acts already done.

	When the mistake in making the Order was ours
	We can also discharge a section 26 Order within twelve months after it is made under section 89(3) when the mistake in making the Order was ours.
	Technically, where we discharge an Order, the protection of that Order will disappear entirely and retrospectively. However, section 89(3) provides that we "may with or without any application or reference to them discharge the order in whole or in part, and subject or not to any savings or other transitional provisions" when the section 26 Order is discharged.
	The trustees or third parties who relied on the Order have to depend on these "savings or other transitional provisions". These provisions offer the trustees protection so that they do not suffer when the mistake in making the Order was ours. If these provisions were absent, they would not be protected by the provisions of section 26 that direct that "anything done under the authority of an Order [under section 26] shall be deemed to be properly done in the exercise of [the trustees' powers]."
	However, any proceedings for breach of trust in these circumstances can be effectively defended by trustees. They will have defences under Article 1 of the First Protocol of the Human Rights Act 1998 (see OG 71 C3), or other defences to proceedings for breach of trust in relation to acts carried out under the Order before it was cancelled.

8. How is the authority given by a section 26 Order put into practical effect?
	One of the key principles for a section 26 Order is that its overriding character is to confer a discretionary power that may be backed up with mandatory conditions.
	A section 26 Order cannot have as a primary purpose the provision of a mandatory direction. An example of what this means is that we authorise the trustees to spend capital, we do not direct them to spend it. Both caseworkers and trustees must be aware that this requires the trustees to formally decide to use any powers the Order has given.

9. When the Order is made

Our usual practice is to authenticate the original Order by affixing the Commissions' seal, and, where authenticated copies are required, to produce them under section 93(3) of the 1993 Act. However, there is no reason in principle, why all copies of an Order should not, instead of using section 93(3), be authenticated by affixing the seal. The same principle applies to copies of Schemes. This alternative will be appropriate when we are asked for further sealed copies of Orders or Schemes.

10. Filing Orders
	10.1 Orders that affect the trusts of the charity 10.2 Discharging Orders

	10.1 Orders that affect the trusts of the charity
	Orders affecting the trusts of the charity (ie Orders conferring general powers and Orders that amend specific parts of the governing document) form part of the charity's trusts and should be placed on the CR file. They should also be recorded on the Charity Database.

	10.2 Discharging Orders
	Orders to discharge an Order of the Commission under the power given in section 89(3) of the 1993 Act should be placed on the Key Document file. The Order being discharged should be removed from the CR file and placed with the discharging Order on the Key Document file.

Glossary of Terms used in this Guidance
	the 1993 Act
	the 2006 Act
	Order
	Scheme
	trustees

Index to further related information