OG45 A3 UNINCORPORATED CHARITIES

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OPERATIONAL GUIDANCE

UNINCORPORATED CHARITIES

TRANSFER OF PROPERTY FOR SMALL CHARITIES

OG 45 A3 – 18 March 2008

Purpose

This guidance explains the provisions of sections 74, 74A and 74B of the 1993 Act (inserted by section 40 of the 2006 Act), which allow the property of small unincorporated charities to be transferred to one or more recipient charities.

Functional responsibility

For action

Charity Services
All Operational Staff

Contents

1. Introduction
2. Which charities can use the power?
3. What do trustees have to do before passing a transfer power resolution?
4. Considering the resolution
5. Objections to resolutions
6. Transfer of property
7. Authorised officers
Glossary of Terms used in this Guidance

Index to further related information


The Law	Refer to a lawyer	Refer to an accountant

1. Introduction
	Sections 74, 74A and 74B of the 1993 Act, inserted by section 40 of the 2006 Act, (the transfer powers) enable small unincorporated charities to transfer all their property to charities whose purposes include those of the transferring charity, by means of a resolution. As with all our small charity casework our approach to this should be proportionate and light touch to enable the trustees to make the transfer unless there are serious concerns.
	In all cases where we receive enquiries on this subject we should refer the enquirer to our public guidance Unincorporated Charities Guidance-Transfer of property to another charity or charities (CSD 1348A1) (see OG 45 B3) and encourage charities to notify us of resolutions by using our declaration form (CSD 1348B), which, if correctly completed and if the charities concerned are registered, provides all the information we require to consider the resolution and minimises the amount of work involved for ourselves and trustees. These documents are available on our web site in the Apply for it section.

2. Which charities can use the power?
	Section 74(1) of the 1993 Act specifies that the transfer powers can be used a charity if-
	its gross income in its last financial year did not exceed £10,000; and
	it does not hold any designated land; and
	it is not a [charitable] company or other body corporate (this does not prevent property being transferred to such a charity, see section 6).
	The income threshold may be altered by an order made by the Secretary of State.

3. What do trustees have to do before passing a transfer power resolution?
	3.1 What trustees should do before passing a resolution and how we should advise them 3.2 What do ‘reasonably practical’ and ‘substantially similar’ mean? 3.3 Passing the resolution

	3.1 What trustees should do before passing a resolution and how we should advise them
	The action trustees must take to pass a transfer power resolution and sending it to us is described in detail in section 3 of our public guidance CSD 1348A2.
	When answering queries from trustees about using the transfer power we should encourage them to follow our public guidance and use our standard form of declaration (CSD 1348B) to help ensure they use the procedure correctly and provide us with all the information we need to consider the resolution.
	The trustees should also check with the trustees of the receiving charity or charities that they:
	are prepared to accept the assets of the transferring charity;
	are aware that as far as is reasonably practicable, they must use those assets for purposes that are similar to those of the transferring charity, unless they consider that to do so will not result in a suitable and effective method of using them; and
	that any assets of the transferring charity that represent permanent endowment will continue to be permanent endowment after the transfer.
	We can give the trustees guidance under section 74B(8) of the 1993 Act about how property that represents permanent endowment and is to be transferred to two or more charities should be divided. The trustees must take account of that guidance. Cases like this will be rare and only likely to occur where we have been in contact with the trustees of the transferring charity while they are considering whether to pass a resolution.

	3.2 What do ‘reasonably practical’ and ‘substantially similar’ mean?
	We may be asked what the terms ‘reasonably practical’ and ‘substantially similar’ mean. In both cases section 3 of our public guidance CSD 1348A1 provides an explanation with straightforward examples. It places an emphasis on the trustees being in the best position to decide this (with their knowledge of the charity’s operation). If we are asked about this we should ensure that our advice includes the fact that the trustees of both the transferring and the receiving charities should be are aware of this requirement.
	Of the two terms ‘substantially similar’ is the one that is of direct concern to us because we should object to transfers between charities that do not have purposes that meet this requirement. What is ‘reasonably practical’ is a decision of the trustees of a receiving charity.
	In some rare cases the terms ‘reasonably practical’ and ‘substantially similar’ may cause difficulty for the trustees of the transferring charity because of the circumstances in which the charity is operating. For example:
	the beneficiary class is dwindling in size because it is linked to a particular event, such as a disaster or a war and the surviving beneficiaries are now very old; or
	the trustees may have concerns because the most suitable receiving charity may exclude current beneficiaries of the charity.
	In both these circumstances the trustees may need our guidance about how to proceed and should be advised to contact us in writing, either by post or e-mail, setting out the situation so that we can consider what will be the most expedient action in the circumstances and advise them accordingly. In such cases we should advise the trustees to take the action that appears most pragmatic having regard to the requirements of the transfer power and be prepared to require the trustees to publish notices to allow interested parties to comment on the proposal.
	An example of a situation where we can advise that we are not likely to object to a resolution because the purposes of the charities involved are substantially similar include a local charity for the relief of poverty, without permanent endowment, being able to properly transfer its assets to a countywide charity with similar purposes. It can also consider transferring its assets to charities that have similar purposes to the relief of poverty (see section 2(a) of the 2006 Act) such as:
	the relief of those in need by reason of youth, age, ill-health, disability, financial hardship or other disadvantage (section 2(j) of the 2006 Act); or
	the advancement of health or the saving of lives (section 2(d) of the 2006 Act).
	But we should advise that we are likely to object to a resolution that will cause its assets to be transferred to a charity with purposes that are likely to have no similarity, such as:
	the advancement of religion (section 2(2)(c) of the 2006 Act); or
	the advancement of animal welfare (section 2(2)(k) of the 2006 Act).
	The requirement that the trustees of the receiving charity or charities must ensure that as far as is reasonably practicable that the property is used for purposes that are similar in character to those of the transferring charity does not apply if the trustees of the receiving charity consider that complying with it will not result in a suitable and effective method of applying the property.
	Where a charity has property that represents permanent endowment, the conditions set out above must be met, but if the proposed transfer is to two or more charities, or the receiving charity proposes to apply the property differently we should consider whether it is appropriate for us to give guidance to the charities.
	Trustees should also be reminded that if the resolution passes the property to more than one charity, it must specify how the property is to be divided between those charities and, if the transferor charity has permanent endowment, the way the property is divided must take account of any guidance we may have given under section 74B(8) of the 1993 Act.

	3.3 Passing the resolution
	Any resolution using the transfer powers must be passed by a majority of not less than two-thirds of the trustees of the transferring charity who vote on the resolution. The trustees may use a postal vote if the charity’s governing document allows this but otherwise the majority should be of those trustees present and voting.
	Trustees who are present at the meeting and do not vote, or trustees that have not voted in a postal ballot, cannot be included in the calculation of the two-thirds majority. The voting process is explained in detail in section 4 of our public guidance CSD 1348A1.

4. Considering the resolution
	4.1 Initial consideration 4.2 The 60-day period 4.3 Should we object to the resolution? 4.4 Are the objects of the charities "substantially similar"? 4.5 When might an obligation imposed by the transfer powers not have been complied with? 4.6 What should we do when we receive a transfer powers resolution? 4.7 Publication of notices 4.8 Directions to provide us with additional information

	4.1 Initial consideration
	The consideration of most transfer powers resolutions will be straightforward and we should proceed on the basis that each one is valid unless we have evidence that this may not be the case. Caseworkers dealing with these resolutions should first ask themselves the following questions in the following order:
	Is the charity able to use this procedure? (See section 2)
	Have the trustees followed the procedure correctly? (See section 3)
	Should we object to the resolution? (See section 5)
	As indicated in section 3, we prefer trustees to use our declaration form CSD 1348B, to tell us they have passed a resolution using the transfer powers. The declaration gives us all the information we need to consider a resolution.
	However we should be flexible about how the required information is provided and, if the charities involved are registered, it will usually be sufficient for the trustees to send us a letter, the text of which includes the wording of the resolution, the statement of their reasons for passing it and confirmation that the requirements of the transfer powers have been met. The following is a checklist of issues to be resolved when considering a transfer powers resolution:
	1.	The trustees are have been properly appointed in accordance with the governing document of the charity (the declaration form provides this confirmation and we should normally accept that this is the case, unless there are clear causes for concern, for example if we are aware that the trustee body is not constituted in the way provided for in the governing document).
	2.	The gross income of the charity in its last full accounting period was not more than £10,000.
	3.	The charity does not hold designated land.
	4.	The charity is not a company or other type of body corporate.
	5.	The trustees are satisfied that-
		It is expedient in the interests of furthering the purposes for which the property is held for it to be transferred to another charity/ies in accordance with the resolution (this should be confirmed by the statement of reasons); and
		The purposes of any charity receiving the property under the resolution are wide enough to include the purposes of the transferring charity or, if the transferring charity is transferring property that is permanent endowment, the purposes are substantially similar to the purposes of the transferring charity.
	6.	The trustees of the receiving charity have indicated that they are prepared to accept the property of the transferring charity.
	We must also ensure that we have been sent a copy of the trustees’ statement of reasons for passing the resolution.
	If any of the charities named in the resolution is not registered we should also ensure that we receive a copy of their governing document, so that we know what the objects of all the charities named in the resolution are.

	4.2 The 60-day period
	Because of the provisions of section 40 of the 2006 Act, even though in practice we consider whether to object to a resolution a resolution as soon as we can after the date that it is received, the earliest the resolution can take effect is 60 days after that date (the 60-day period).
	If we direct the publication of a notice or notices, or that we require further information, the 60-day period stops running from the date of the letter giving the direction until the publication period is over or we receive the information, which may result from guidance we have given. If we direct the publication of a notice or notices and further information the period stops running until both have been complied with, see sections 4.7 and 4.8 for more detail and charts that give examples of how typical cases may run.
	If the 60-day period is suspended for more than 120 days due to the trustees failing to publish the notice or notices, telling us they have published them, or providing us with information, we must treat the resolution as if it had never been passed.

	4.3 Should we object to the resolution?
	Assuming that the decision is within the range of reasonable decisions trustees can make, we can only object to a transfer powers resolution, on the grounds that:
	the objects of the receiving charity or charities are not substantially similar to those of the transferring charity (see section 4.4); or
	the proper process has not been followed - an obligation imposed by or under section 74 or 74B has not been complied with (see section 4.5).

	4.4 Are the objects of the charities "substantially similar"?
	In determining whether two sets of purposes are similar in character, we should be at least as flexible and imaginative in our approach as we are in relation to a cy-près application (see OG 2), bearing in mind that this is a separate statutory provision with a different test and is in some respects wider than the cy-près test. We should also recognise that the trustees, with their knowledge of the circumstances in which the charity is operating, are in the best position to decide what is "substantially similar". There are examples of circumstances when the proposed change to the purposes that will be caused by the transfer may lead us to object to a resolution in section 5.
	If there is doubt about whether we should object to the transfer we should first consider the trustees' statement of reasons for passing the resolution. In these cases we should use the statement of reasons to satisfy ourselves that the beneficiaries of the transferring charity will not be deprived as a result of the transfer unless there are good reasons. If that does not resolve the doubt we should consider obtaining further information using the powers to publish notices or request additional information or explanations referred to in sections 4.7 and 4.8.

	4.5 When might an obligation imposed by the transfer powers not have been complied with?
	Cases where this occurs should be very rare. Examples of situations where this might occur include:
	Where a quorum of trustees was not present at the meeting at which the resolution was passed;
	The resolution was not passed by the required majority of two thirds of the trustees present and voting on the resolution;
	The gross income of the transferring charity in its last financial year was more than £10,000;
	The transferring charity owns designated land.

	4.6 What should we do when we receive a transfer powers resolution?
	Unless we have concerns about the resolution, on receipt we should issue a standard letter of acknowledgement on the lines of our standard paragraphs which:
	indicates that unless they hear from us by the end of the 60-day period we have no objection to the resolution and gives the date when it will become effective;
	that we will remove the charity from the Register of Charities when we are notified that the transfer of the property is complete; and
	also reminds the trustees of the further action they must take to complete the procedure and that they may apply for the transfer to be entered on the Register of Mergers (see section 6.2).
	If we do have concerns about a resolution made under the transfer power we can take one or both of the following actions. We can:
	direct the trustees to give public notice of the resolution in such manner as we think fit (see section 4.7); and/or
	direct the trustees to provide us with additional information or explanations relating to the circumstances in and by reference to which they have decided to use the transfer powers, or their compliance with the obligations imposed on them by that section in connection with the resolution (see section 4.8).
	There should only be a small minority of cases where our concerns may justify directing the publication of a notice or notices and/or the provision of further information or explanation.

	4.7 Publication of notices
	Why should we ask for notices to be published?
	We should use public notices as a means of asking for comments on a resolution from people with an interest in the charity. These may include comments from:
	Existing or potential beneficiaries;
	Creditors, debtors or donors (including bodies that have made grants to the charity).
	Local authorities.
	If the charity has a membership, and we do not know if they have been consulted about the resolution, the members.
	When we consider any comments and there is any doubt whether a person does have a genuine interest the advice of Legal Division should be sought.
	When should we ask for notices to be published?
	Circumstances where we might have concerns about a resolution and require a notice, or notices, to be published include:
	Where the differences in the objects of the transferring and receiving charities seems greater than would usually be regarded as "substantially similar" and the comments we receive will help to inform our decision whether or not to object;
	Where it seems likely that the proposed transfer will unnecessarily harm the interests of the existing beneficiaries;
	Where there is a history of mismanagement or misappropriation of the charity’s assets and the comments of people with an interest in the charity on its current management will help us make a decision whether or not to object to the resolution;
	The charity has attracted a high level of public interest, (possibly even from Members of Parliament) expressing concern at the way it is run, even though the complaints are unsubstantiated; or
	When the expediency arguments are particularly weak, for example if the trustees’ statement of reasons makes it seem doubtful that the transfer will lead to the property being used more effectively for the purposes of the transferring charity.
	In most cases it will be sufficient to publish a single notice in a way chosen by the trustees using their local knowledge of the charity and, if it has one, the area of benefit, who should be able to confirm to us that the method of publication chosen is appropriate in the circumstances, ie the trustees should provide details of where the notice was publicised and give reasons why this was the best way to bring it to the attention of ‘interested persons’.
	The 60-day period is automatically suspended for 42 days (the 42-day period) from the day the trustees first give public notice.
	What must we do when receive comments from ‘interested person’ after public notice has been given?
	In cases where we have given a direction to give public notice, we must take into account any representations made to us by "persons appearing "to be interested in the charity", where those representations are made within 28 days of the publication of the notice by the trustees. The comments should be used to help us decide whether to object to the resolution.
	If there is any doubt whether a person does have a genuine interest the advice of Legal Division should be sought.

The progress of a typical case where we have required a notice to be published
Day 1	We receive a copy of a resolution. This starts the 60-day period.
Day 12	We tell the trustees to publicise the resolution. This suspends the 60-day period. If the 60 day period is suspended for more than 120 days because the trustees have either failed to publish the notice or have not told us it has been published it will be as though the trustees had never passed the resolution and they cannot bring it into force.
Day 25	The trustees publish the notice. This starts the 42-day period.
Day 67	The trustees have told us that the notice has been published two weeks ago but the 42-day period continues to run until today. The 60-day period now starts to run again (there are 48 days left).
Day 115	The 60-day period ends, we have not objected and the resolution comes into force.

	4.8 Directions to provide us with additional information
	These directions require the trustees to provide us with additional information or explanations about the circumstances in, and by reference to which, they have resolved to transfer the property of their charity, or their compliance with the requirements imposed on them by the transfer powers. There are standard form letter paragraphs that may be used for this purpose. (We also have paragraphs that may be used when we require the publication of a notice and further information).
	Where we give such a direction the 60-day period stops running from the date on which the direction is given to the trustees and does not start running again until we receive the information we have requested, or later if we have directed that notices should be published and the 42-day period has not expired. If we can obtain the information we need by making a telephone call there will clearly be no impact on the 60-day period.
	An example of where we might ask for further information is where the trustees of the transferring charity have not used our standard declaration form and either their charity or the receiving charity is not registered with us (or both are not registered) and we do not know whether the purposes of the receiving charity do include all those of the transferring charity. In these cases we should ask for copies of the governing documents we do not have, unless the available information indicates that such action is not proportionate bearing in mind the value of the charity’s assets. This is a decision for the case officer.
	We may also have concerns:
	if the charity’s income has fallen substantially, bringing it within the income threshold, and we do not know the reason; or
	where the trustees have shortened the charity’s financial year to bring it within the financial threshold of the transfer powers (under regulation 5 of the Charities (Accounts and Reports) Regulations 1995 a charity can have a financial year as short as six months). The advice of Legal Division should be sought in these cases when the additional information has been received as the circumstances of these cases are likely to vary considerably, from the very small charity whose annual income has never been close to £10,000 to one whose income usually exceeds that figure.
	if we do not have confirmation that the procedure for passing the resolution has been properly complied with, ie we do not have all the information referred to in section 4.1.
	when the expediency of the transfer is in doubt, see section 4.6.
	The first of these concerns may indicate a significant problem that we should make enquiries about. For example, it may be that the charity has lost support, because donors no longer believe it fulfils a useful purpose, alternatively it could be a sign of mismanagement. In cases where this has occurred and we do not know the reason for the reduced income we should seek a written explanation from the trustees before considering how we will proceed.
	If the concern relates to the procedure for passing the resolution this should, where possible, be resolved by a telephone call asking for confirmation that the procedure has been correctly followed. A record of the call must be made and filed with the copy of the resolution. If the information provided indicates that the procedure has not been followed correctly the resolution is invalid and we should advise the trustees that they cannot proceed with the transfer until they have passed a valid resolution.

The progress of a typical case where we have asked for more information
Day 1	We receive a copy of a resolution. This starts the 60-day period.
Day 14	We ask for information to help us consider the resolution because we do not have a copy of the governing document of the transferring charity, because it is not registered. This suspends the 60-day period.
Day 133	We receive the copy of the governing document. This restarts the 60-day period with 46 days left. The 60-day period has been suspended for 119 days. If it had been suspended for more than 120 days it would be as if the resolution had never been passed.
Day 179	The 60-day period ends, we have not objected and the resolution comes into force. It is worth noting that the case has been open for nearly six months.

5. Objections to resolutions
	We do not approve resolutions made under the transfer powers, but we can object to them either on procedural grounds or on the merits of the proposals contained in the resolution. Section 74A(2) of the 1993 Act defines ‘procedural grounds’ that ‘any obligation imposed on the trustees imposed on the trustees by or under section 74 … has not been complied with in connection with the resolution’.
	Any objection must be made before the end of the 60-day period (including any period during which that period has been suspended due to the publication of notices or a direction to provide further information). The objection will prevent the resolution from coming into effect.
	Consequently the only way that representations from the public or further information provided by the trustees will be able to prevent a resolution from coming into effect is:
	if they demonstrate to us that the procedural requirements of the section have not been met (in which case the resolution will be invalid (see section 4); or
	on the basis that the resolution lacks merit, ie that the transfer is not in the interests of furthering the purposes of the transferring charity.
	Examples of situations where the resolution may lack merit include:
	the purposes of the receiving charity or charities do not actually include all the purposes of the transferring charity and there is no acceptable justification; or
	the receiving organisation is not a charity within the jurisdiction of the English and Welsh High Court, for example a charity in Northern Ireland or Scotland (the definition of charity in section 96 of the 1993 Act applies to receiving charities as well as transferring charities);
	we may have cause for concern about the administration of the receiving charity, such as a history of maladministration or misappropriation of its assets, which makes it doubtful whether the transfer is in the interests of furthering the purposes of the transferring charity.

6. Transfer of property
	6.1 What happens when we do not object to a resolution? 6.2 The Register of Mergers 6.3 Vesting property 6.4 Permanent endowment and charitable companies 6.5 Right to receive yearly sums

	6.1 What happens when we do not object to a resolution?
	In all cases, when we are satisfied that we have no objection to a resolution we should inform the trustees promptly, indicating the day on which the resolution will take effect. Our standard acknowledgement letter for transfer powers resolutions) refers trustees to our public guidance CSD 1348A1 for information about what they must do to complete the transfer process.
	If the charity is registered, the letter that issues must also indicate that we will be removing it from the Register when the transfer is complete. This will be on the basis that the charity has ceased to exist, which will not happen until all the property has been transferred.
	It is the responsibility of the trustees of the transferring charity to arrange for all its property to be transferred to the receiving charity or charities at a date agreed by the trustees of the charities concerned. There is guidance for trustees on:
	how to transfer land in CSD 1348A1; and
	how to transfer investments in CSD 1348A2.
	If the charity is registered, the removal will be light touch and can proceed on the basis of a letter or e-mail enclosing or attaching a copy of the statement of assets given to the receiving charity or charities. If there is a difficulty in obtaining this information we can accept the evidence provided by a telephone call indicating that the transfer of assets is complete, provided a written record of the call is made. The removal will be on the basis that the charity has ceased to exist and the document(s) providing the relevant information should be placed on the Key Documents file. See OG 17 B5.

	6.2 The Register of Mergers
	While it does not specifically mention the fact, section 75C of the 1993 Act (inserted by section 44 of the 2006 Act) allows all transfers under the transfer powers to be entered in the Register of Mergers, regardless of whether the transferor charity has previously been registered with us (see OG 60 Register of charity mergers). As the entry on the Register of Charity Mergers cannot be made until we are notified that the transfer of property is complete it is the duty of the trustees of the transferor charity to do this and does not affect our decision to remove the charity from the Register of Charities.

	6.3 Vesting property
	To enable the property of their charity to be transferred the trustees can ask us to make Orders vesting any of its property in-
	(a)	the receiving charity (if it is a body corporate), its charity trustees or any trustee for that charity (such as a custodian trustee); or
	(b)	in any other person nominated by those charity trustees to hold the property in trust for that charity.
	Such Orders will usually be concerned with the transfer of land, where the land is vested in the Official Custodian for Charities and will continue to be so vested after the transfer and where the land will be vested in the Official Custodian, or the trustees of the receiving charity, or its holding trustees or custodian trustee.

	6.4 Permanent endowment and charitable companies
	While a transferring charity cannot be a company or some other type of body corporate there is no objection to a receiving charity being constituted in this form.
	Permanent endowment cannot be transferred to a charitable company to be held as part of its corporate property, because a company does not hold its corporate property on trust. The corporate property of a company is applicable generally in furtherance of its objects: the requirements that permanent endowment must be retained for investment or use in specie can only be enforced through a trust.
	The recipient of permanent endowment under section 74 – whether a company or not – will always receive it in trust, because of the effect of sub-section (10). However, it is sensible to recommend to the company that it should declare in writing trusts over property that it receives under section 74, unless there are already written trusts that apply to the property.
	This is to ensure that the property is kept distinct from the corporate property of the company, which can be applied without distinction between capital and income for the purposes of the company.
	Our accepted practice in these circumstances is to suggest to companies that want to act as receiving charities is that a secondary vehicle be established on trust whose objects are in support of the company, which has the power to hold permanent endowment and for which the company acts as trustee. This separate charity is then be registered and can take receipt of the permanent endowment without contention or debate as to whether a special trust exists and whether it is a distinct trust or a restricted or earmarked fund. A uniting direction is then made so that the company and the endowment fund or trust are one for the purposes of registration and accounting.

	6.5 Right to receive yearly sums
	Occasionally, the property of a charity proposing to make a transfer powers resolution may consist of, or include, the right to receive a specific yearly sum of money from another charity. The term "property" in section 74 is not defined, but it may be assumed that it includes the right to receive a yearly sum.
	If we do not object to the resolution, the transferring charity will have to notify the organisation which is liable to pay the yearly sum:
	of the details of the charity entitled to receive the yearly sum in future; or
	if the property of the transferring charity is to be divided between two or more charities, the details of each of those charities and the proportions in which the yearly sum is to be divided between them.
	If the organisation that is liable to pay the yearly sum needs some authority, it will be for the transferring charity to provide it: copies of the trustees’ resolutions and our letter of acknowledgement should be sufficient.
	If the transferring charity is to transfer the property to the charity that is liable to pay the yearly sum, then the latter charity will simply retain the sum itself in future.
	If the specific yearly sum arises from a rentcharge charged upon the property of the other charity, legal complications may arise if the sum is to be apportioned. If this is the case, the matter should be referred to Legal Division for advice.

7. Authorised officers
	Officers in Charity Services who have been authorised to do so, may:
	sign acknowledgements indicating that we have no objection to a resolution and may, with appropriate advice, if needed, require notices to be published and/or request further information; or
	sign letters objecting to resolutions.

Glossary of Terms used in this Guidance
	1993 Act
	2006 Act
	accounts
	body corporate
	charitable company
	charity trustees
	cy-près
	de minimis
	designated land
	governing document
	gross income
	permanent endowment
	uniting direction

Index to further related information