OG1 A2 - AN OVERVIEW

In this section...

OPERATIONAL GUIDANCE

ORDERS AND SCHEMES

SCHEMES OVERVIEW – WHAT IS A SCHEME, WHAT ARE OUR POWERS, AND WHY MIGHT ONE BE NEEDED?

OG 1 A2 – 27 February 2007

Purpose

This guidance explains what is meant by a Scheme, when we should offer one and when it is not appropriate to make a Scheme.

Functional responsibility

For action

Charity Services
Legal Division

Contents

1. What is a Scheme?
2. When should we make a Scheme?
3. Our Scheme-making powers
4. When is a Scheme needed?
5. What Schemes cannot do
6. Content of Schemes
7. Powers that must be subject to our approval
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. What is a Scheme?
	A Scheme is a legal document that amends, replaces or extends the trusts of a charity. It may set out new objects and purposes (or changes to them), constitutional arrangements and powers for the trustees of the charity. Some of these provisions will require the trustees to carry out certain actions; others will be discretionary, simply enabling them to take actions if it is in the best interests of the charity.
	It may be:
	a fully regulating Scheme covering all aspects of a charity's purposes and administration and replacing the previous governing document of the charity; or
	a Scheme that varies or adds to some part of the charity's governing document.

2. When should we make a Scheme?
	2.1 Our policy 2.2 Other ways to amend governing documents 2.3 What if there is a legal power already? 2.4 Can trustees update the wording of their charity's objects? 2.5 Can we make a Scheme instead of using the Small Charities provisions?

	2.1 Our policy
	It is our policy only to offer a Scheme where no other method of changing a charity's trusts is available.

	2.2 Other ways to amend governing documents
	We will not normally make a Scheme if we, or the charity, can make the changes the trustees need by using one of the following options:
	a power of amendment in its governing document;
	the power in ss.74 and 75 of the 1993 Act (Small Charities provisions)(see OG 201);
	the statutory power for all unincorporated charities set out in section 74D of the Charities Act 1993, as amended by the Charities Act 2006, that enables the trustees of all such charities to ‘modify the powers or procedures’ in their governing;
	the statutory power in the Companies Act 1985 that enables the members of charitable company to alter the memorandum and articles of association, subject to our prior written consent in some cases under s.64 of the 1993 Act. (see OG 47 B2); and
	an Order under s.26 of the 1993 Act used to confer discretionary authorities on the trustees (section 4 of OG 1 A1).

	2.3 What if there is a legal power already?
	There is no point in making a Scheme or Order simply to confirm the existence of a power that is already available in law, for example, under the Trustee Act 2000 (see OG 86).

	2.4 Can trustees update the wording of their charity's objects?
	A Scheme is not needed if the trustees want to update the wording of the objects/purposes of the charity, but the substance of those objects/purposes remains the same. In these circumstances, any charity can use its power of amendment (if it has one) to make this change, even if the power does not specifically permit changes to the purposes/objects.
	The only exception to this is where the power of amendment clearly prevents the changing of the actual wording, for example, a restriction that prevents any change to the "objects clause" (as opposed to just "the objects"); in these rare cases a Scheme is needed. Where a charity does not have a power of amendment we can make a s.26 Order (rather than a Scheme) for this type of change to the objects clause.

	2.5 Can we make a Scheme instead of using the Small Charities provisions?
	Caseworkers should use their discretion. In some circumstances it may be easier to make a Scheme. For example, there will be occasions when charities that have too much income to be able to use the Small Charities provisions want to merge with charities that can. This situation may occur in the case of charities connected with schools (such as prize funds) where it is proposed to amalgamate them and some can use the Small Charities provisions and others cannot. It will usually be less burdensome for us and the trustees to make a Scheme to cover all the charities involved rather than by insisting that the smaller ones use the Small Charities provisions.

3. Our Scheme-making powers
	3.1 S.15 Schemes 3.2 S.16 Schemes 3.3 S.17 Schemes 3.4 Other provisions 3.5 Publication of Scheme proceedings 3.6 Appeals

	3.1 S.15 Schemes
	S.15(1) of the 1993 Act extends the Court's jurisdiction to make Schemes to include altering the trusts of a charity governed by Royal Charter (see section 2 of OG 1 B6).
	S.15(3) extends the Court's jurisdiction to make Schemes to include altering the trusts of charities governed by certain Acts of Parliament (see OG 1 C1).
	Section 15 Schemes are dealt with by Legal Division.

	3.2 S.16 Schemes
	Under s.16 of the 1993 Act we may exercise the inherent jurisdiction of the court to make a Scheme for the administration of a charity where:
	the Court has made an Order directing us to do so;
	a valid application for a Scheme has been made; or
	circumstances exist in which we can proceed as if an application for a Scheme has been made.
	In the case of certain charities, the Court does not have any inherent jurisdiction to make a Scheme. The jurisdiction does not extend to the alteration of the trusts of charities that are expressed in legislation or in a Royal Charter, unless:
	the actual alteration is not incompatible with the provisions of the legislation or the Charter; or
	statutory authority for the extension is provided.
	Ss.15(1) and (3) and s.17(4) of the 1993 Act provide a statutory extension of the Court's Scheme making jurisdiction in the circumstances they outline, and other provisions of s.17 give us a further special Scheme making jurisdiction in those circumstances.
	Some specific legislation has the effect of extending the ordinary Scheme making jurisdiction; for example, s.96(2) of the National Health Service Act 1977 extends the ordinary Scheme making jurisdiction to include charities regulated by trusts expressed in the preceding sections of that Act.
	The ordinary Scheme making jurisdiction does not apply to charities within s.96(2) of the 1993 Act, but again there is a statutory extension in s.55 of the Pastoral Measure 1983.
	When making a Scheme, we must consider whether, in the circumstances, we need to:
	notify the charity trustees (and possibly others) before we do so (see section 1 of OG 1 B4);
	publicise our proposals (see sections 2 and 3 of OG 1 B4).

	3.3 S.17 Schemes
	S.17 of the 1993 Act enables us to settle (but not make) a Scheme for the administration of a charity established or regulated by other Acts of Parliament (see section 1 of OG 1 B6).
	These Schemes are dealt with by Legal Division.

	3.4 Other provisions
	We may also make Schemes under:
	ss.24 and 25 of the 1993 Act, to establish common investment funds (including pool charities and common deposit funds – see OG 49);
	s. 18 of the 1993 Act where an inquiry under s.8 has been instituted;
	s.2 of the Reverter of Sites Act 1987 (see OG 27);
	The United Reformed Church Acts.
	In addition:
	s.18 of the Commons Act 1899;
	section 55 of the Pastoral Measure 1983; and
	s.5 of the Coal Industry Act 1987,
	extend our ordinary Scheme-making powers.
	Copies of these Acts can be obtained from the Information Centres.

	3.5 Publication of Scheme proceedings
	Under s.20 of the 1993 Act (inserted by s.22 of the 2006 Act) we must consider publicising any Scheme making proposals under ss.16, 17 and 18 (see section 2 of OG 1 B4). All our Schemes under ss.16 or 18 are subject to further publication after they have been sealed (see section 3 of OG 1 B5).
	The Scheme publication requirements in s.20 also apply to s.15 Schemes, because we are using the power given to us by s.16.
	Different publication arrangements may apply for other types of Scheme.

	3.6 Appeals
	An appeal against an Order establishing a Scheme under ss.16 or 18 may be brought in the High Court by certain specified people and bodies and within certain time limits.

4. When is a Scheme needed?
	In practice a Scheme is most likely to be used:
	when a fully regulating Scheme is needed. Since these often involve a re-focusing of the charitable objects, and imposing duties, making a Scheme will continue to be the appropriate machinery;
	to alter the objects of a charity in order to apply its property cy-près where the charity's purposes have failed, either:
		following a period when it operated within its original trusts, that is, subsequent failure (s.16 of the 1993 Act); or
		from the outset, that is initial (sometimes referred to as ab initio) failure, (for instance, in order to apply the proceeds of an appeal that has not met its target (s.14 of the 1993 Act).
		Section 13(1) of the 1993 Act sets out (as amended by section 15 of the 2006 Act) the specific circumstances which include situations where the purposes:
		can no longer be carried out (for example, because it has become outdated);
		have been adequately provided for in other ways (for example, out of public funds);
		have stopped being a useful way of using the funds or property (for example, it provides for the payment of very small sums or pensions to beneficiaries);
	to modernise the constitution of the trustee body in circumstances where the changes may be controversial (for example, where a founder or local authority has a power to appoint or remove trustees, and that power is being restricted or removed against their will);
	where trustees ask for changes including the overturning of an express prohibition (see section 2 of OG 1 A1);
	to direct the trustees to follow a particular course of action.
	Caseworkers should obtain legal advice where there is any doubt about whether we should proceed by Scheme.

5. What Schemes cannot do
	The 1993 Act does not allow us to make a Scheme (or to provide any other authority):
	to settle the ownership of property - for instance, where there is a dispute between the charity and a third party (s.16(3) );
	to settle the existence of, or extent of, any charge or trust (s.16(3)); or
	if we consider it more appropriate for the Court to adjudicate - for instance, where the case is particularly contentious or involves a special question of law or fact (s.16(10)).

6. Content of Schemes
	Our powers to make Schemes are limited by the terms of ss.15 to 17 of the 1993 Act.
	But the precise content of Schemes is a matter for us to decide in consultation with the trustees. The Drafting Manual provides guidance on wording and format.

7. Powers that must be subject to our approval
	When making a Scheme we can consider giving the trustees the following powers, subject to our written approval:
	enabling them to spend permanent endowment or capitalise income of the charity (the rules about spending permanent endowment will be substantially changed when the new sections 75, 75A and 75B of the 1993 Act, as inserted by section 43 of the 2006 Act, come into force early in 2008);
	conferring a benefit of any kind on all or any of the current trustees or their successors;
	restricting 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.

Glossary of Terms used in this Guidance
	1993 Act
	2006 Act
	charity trustees
	cy-près
	governing document
	trustees

Index to further related information