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Status Of Charitable Societies To Appear On Correspondence Etc

Volume 402: debated on Friday 4 April 2003

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9.33 pm

I beg to move amendment No. 1, in page 3, line 17, leave out 'and'.

With this it will be convenient to consider amendments Nos. 2 to 4 and 6.

It is a pleasure to bring the Bill back to the Floor of the House. It received considerable scrutiny and amendment in Committee, but there have been opportunities to reflect on further issues raised in Committee and outside, which form the basis of the amendments that we shall consider today.

Amendments Nos. 1, 2, 3, 4 and 6 deal with conveyances that were not included in the compass of the Bill. The intention is to ensure that the Bill properly covers important agreements between societies and their business partners. The amendments also deal with the protection of conveyances that charities, which may be co-operatives or community benefit societies, seek to agree. These straightforward amendments should be uncontroversial, based on our experience of debating the Bill so far.

I simply wish to confirm that, in the overall context of the Bill and the debates on it that have taken place so far, I have no objection whatever to the amendment. It seems wholly practical.

Clauses 2 and 3 change the powers and capacities of the societies to facilitate their ability to enter into business transactions. However, there are also exemptions to some of those provisions for societies that are charities.

The rationale is to ensure that the charities' assets are protected and not used for a purpose for which they are not intended. That is in line with the corresponding provisions that already exist for companies that are charities.

Clause 2 deals with part of the system of protection for charities. It requires societies that are charities to make their charitable status clear in various documents, including business letters and official publications of the societies. The aim of amendments Nos. 1, 2, 3, 4 and 6 is to provide greater conformity with company law by listing conveyances as other documents where the charitable status of the society must be disclosed. Those amendments also provide for the offences that will be committed where societies or their officers do not comply. Again, that is consistent with company law.

Conveyances could involve societies in significant transactions. It is therefore important that societies that are charities disclose their status. The Bill will then afford charities that comply with that disclosure requirement greater protection for their assets, in the event that conveyances are outside the rules or powers of the societies.

Can my hon. Friend confirm whether the changes that she talks about will create the level playing field between industrial and provident societies and companies that is so important for future competition in that sector?

I am very happy to confirm that that is the intention. These amendments should do exactly as my hon. Friend suggests: provide a level playing between industrial and provident societies and companies.

Is that absolutely necessary? Although I have argued that many changes in line with companies should be made for industrial and provident societies, may I ask my hon. Friend to give an example of why these amendments are as important as she and my hon. Friend the Member for South Derbyshire (Mr. Todd) suggest?

Yes, it is important that the playing field is completely level wherever possible. I have already given the example that conveyances should be listed as documents where the charitable status of societies must be disclosed. That is the purpose of these amendments in relation to industrial and provident societies.

As chairman of the all-party group on charities and the voluntary sector, I take a great interest in the proposals. Can my hon. Friend confirm whether the Bill and these amendments are in line with the Treasury's recommendations on charity law reform generally?

I can confirm that the amendment's intention is to bring industrial and provident societies up to date with the current state of company law, thus providing a level playing field. On those grounds, I commend the amendment to the House.

Amendment agreed to.

Amendments made: No. 2, in page 3, line 18, at end insert

(e) in all conveyances purporting to be executed by or on behalf of the society.'.
No. 3, in page 3, line 32, leave out second 'or'.

No. 4, in page 3, line 35, at end insert

(c) executes or authorises to be executed on behalf of the society any document such as is mentioned in subsection (1)(e) of this section,'.—[Mr. Todd.]

I beg to move amendment No. 5, in page 4, line 7, at end insert—

'(c) in relation to a society whose registered office is situated in one of the Channel Islands, means a society established for charitable purposes only ("charitable purposes" having the meaning given by the law of the Island in question).'.

These amendments relate to the possibility that a society may be active in the Channel Islands. While the legislation does not relate to the Channel Islands or apply to them, it is not particularly uncommon for societies to trade there and, in some instances, be based there. During the Bill's progress, consultations have taken place with the Channel Islands authorities to ensure that they believe that appropriate provisions are included in the Bill, and they do. The principle behind the clauses amended by the amendments is, as has been said earlier, to provide societies with a level playing field so that they may trade on the same basis and with the same freedoms as equivalent companies. Obviously, there are other matters to consider which have arisen in debate in the House and in Committee, and I am sure that they will come up again on Third Reading, but we are now considering a specific aspect of the Bill. As I have said, the amendments have the support of the Channel Islands authorities.

I appreciate that my hon. Friend's amendments relate to the Channel Islands but, not having served in Committee, I should be grateful if he would tell me whether, in previous discussions, any thought has been given to the possibility that businesses in other parts of the world might operate in ways that weaken the protection that businesses in this country would otherwise enjoy? That may be outside the scope of my hon. Friend's Bill, but has any thought been given to it?

I thank my hon. Friend for his slightly cryptic intervention, in which he hinted at practices in other parts of the world that may be covered by the Bill. We cannot legislate for other parts of the world, and where societies choose to carry on activities in other parts of the world, those activities are bound by the laws of those countries. The amendments relate only to societies based in the Channel Islands. Some societies carry on business through agencies in the Channel Islands but, because the Bill does not constitute law within the islands, it does not relate to that.

Concern has been expressed in the past about the special status of the Channel Islands, and the Treasury has taken great interest in the development of financial services law there. I am thinking in particular of limited liability partnerships. Will my hon. Friend confirm that changes relating to the Channel Islands will not weaken in any way the solid foundations of his Bill?

I can confirm that the amendments do not alter in any sense the thrust of the Bill. They apply purely to the Channel Islands authorities, with whom we are in partnership but who, as my hon. Friend correctly states, are in a slightly anomalous legal position. I very much hope that the House supports the amendments.

I am intrigued by the suggestion in the amendments that the definition of charitable purposes may differ from one Channel Island to another. Is that the case, and is there not something to be said for encouraging the Channel Islands to have a common definition?

9.45 am

I am afraid that I am a sad soul who is not an expert on charitable activity on individual Channel Islands, and would certainly not seek to comment on how it may differ in different islands. However, presumably that matter was given careful thought by the Channel Islands authorities when they decided to support the amendments. I hope that the House, too, will support the amendments.

It may be uninteresting but helpful none the less to start with the point made in the intervention by the hon. Member for High Peak (Mr. Levitt). If I recall correctly from my dim and distant days of studying law at the same Cambridge college as the Bill's promoter, the definition in the English legal system of the Channel Islands includes such places as Sark. It is possible that there are different charitable purposes on Sark, as it has no motorised vehicular traffic, so it may need a different definition to ensure that that is excluded. I do not know that for a fact, but it might be helpful in showing that there may be a difference. I daresay that the hon. Member for South Derbyshire (Mr. Todd) has thought the matter through, as have the Channel Islands authorities.

The hon. Gentleman will be aware that the Government strategy unit has proposed changes to charity law including a 10-point definition of charitable purposes—I may catch your eye later, Mr. Deputy Speaker, to talk about that. I hesitate to get the hon. Gentleman to suggest again what the Channel Islands should be doing, but the process that we are carrying out on the recommendation of the strategy unit to achieve a consistent approach to charities would help to clear up any anomaly.

The hon. Gentleman makes an important point about the consistency of definition in the operation of the legislation. In moving amendment No. 5, the hon. Member for South Derbyshire said that the applicability of the Bill to the Channel Islands is not the issue, but it has to make reference to them in the case of societies that are registered there or have them as their place of business. The hon. Member for High Peak made an important point about the need in framing any legislation to seek a level playing field and consistency of approach. During proceedings on the Bill, there has been a debate about whether the Bill pre-empts the report from the strategy unit, formerly the performance and innovation unit, about charities and the voluntary sector. The Minister has consistently assured us that it does not, but it has focused thinking about the report.

I was much taken with the point made by the hon. Member for Brighton, Pavilion (Mr. Lepper), who asked about territories beyond the Channel Islands. The Bill's promoter rightly suggested that his hon. Friend was a touch cryptic in seeking to stay in order, but I felt that he may have been trying to explore Delphic territory. Delphi, of course, is a long way from the Channel Islands, so I am not sure that any assistance has been given.

The amendment is important because of the way in which such entities are often based and configured. Can the Minister give an assurance that not only in the strategy unit's work, but in the company law reform work that we expect to come forward in the next Session or shortly thereafter, a consistent approach will be taken to industrial and provident societies, as well as to those that we prefer to call co-operatives and community benefit societies? One aspect of the process that the amendment highlights is that it is not always necessary to have different legislation for those entities, given that we are bringing them into conformity with the broader law as it applies to corporate entities. If we can avoid societies being encompassed by separate statutes, and instead bring them into the body of company law, that would obviously be better. Clearly, the Minister and her advisers will give that careful consideration.

On that basis, I am happy to support the amendment, but it would be helpful to have the assurance that there will be a consistent approach across all corporate entities at a later date.

The promoter knows that the broad thrust of the Bill has all-party support. It is sensible for the provisions to encompass societies registered in the Channel Islands. Clause 2 deals with duties that will be imposed on charities, so it is important that the definition of bodies included in that broad remit is correct. It is clear which bodies are covered by England and Wales law and Scottish law, but there may be some uncertainty about those registered in the Channel Islands because, as the hon. Member fur High Peak (Mr. Levitt) pointed out, the provisions will apply to all the bodies defined as charitable under the Acts of the various islands. That is a broader remit, and I hope the Minister will assure us that we can take it on trust that the bodies that we wish to catch within the Bill's net will be broadly similar, under the various laws of the Channlel Islands, to those that would be caught by English and Welsh law and Scottish law.

What is the position of societies registered in the Isle of Man? Are those covered by the Bill or by other English and Welsh law, or do they remain outside the scope of the Bill, although we have brought in England, Wales, Scotland and now, with the amendments, the Channel Islands? How widely is the net cast?

As I outlined earlier, clauses 2 and 3 seek to make changes to the powers and capacities of societies to facilitate their ability to enter into business transactions. However, there are also exemptions from some of these provisions for societies that are charities. The rationale for that is to make sure that charities' assets are protected and are not used for a purpose for which they were not intended. That is in line with the corresponding provisions that already exist for companies that are charities.

To apply these provisions, we obviously need to define a charity. The Bill, as amended in Committee, already does so for societies registered in England and Wales, or Scotland. Although the Bill does not apply directly to the Channel Islands, we still need to make provision for societies based there that undertake business subject to the law of England and Wales, or Scotland. Following consultation with the Channel Islands authorities, I believe the amendment makes the necessary provisions. I am happy to reassure hon. Gentlemen who raised that point today. I therefore support the amendment.

The Industrial and Provident Societies Act 1965 does not apply to the Isle of Man, but it does apply to the Channel Islands, so they are in slightly different categories. That is why the Bill needs to cover the Channel Islands industrial and provident societies that are charities, but not those registered on the Isle of Man.

I am sorry to keep going on about the matter, but is my hon. Friend saying that it is possible for two charitable companies operating in mainland Britain, in the same environment, carrying out the same functions, one of which is registered in Britain and one of which is registered in the Channel Islands, to operate to two different legal definitions of charitable functions?

I assure my hon. Friend that that is the case, which is why we have had to define a charity for the purposes of the Bill.

On the point raised by the hon. Member for Eddisbury (Mr. O'Brien) about keeping industrial and provident society legislation up to date with company law, it is important to recognise that industrial and provident societies are not companies. However, we are keen to ensure that industrial and provident societies enjoy any new operational flexibilities that are introduced for companies.

As an adaptation of my earlier question, can my hon. Friend assure the House that there will be a level playing field between charities formed in the Channel Islands and those formed in other parts of the United Kingdom, so that there will be no attraction for some organisations to form themselves in the Channel Islands, rather than in the rest of the United Kingdom?

I shall deal first with the comments of the hon. Member for Eddisbury, and then return to my hon. Friend's question. We are keen to ensure that industrial and provident societies enjoy the same flexibilities as those that we grant companies in due course. The review of company law being carried out by the Department of Trade and Industry will give the Treasury the opportunity to consider updating a substantial proportion of industrial and provident society legislation through the powers given to us by my hon. Friend the Member for Harrow, West (Mr. Thomas) in his private Member's Bill. Although we cannot start the updating process until company law has changed, we will start thinking about how to modernise industrial and provident society legislation in advance. When we respond fully to the strategy unit's report, we will also bear in mind those areas of industrial and provident society legislation that we consider ripe for reform.

I was slightly concerned by my hon. Friend's comment to the hon. Member for Eddisbury (Mr. O'Brien) that any future changes to company law would need to be read across for industrial and provident societies. Although I welcome that, I hope she will acknowledge that in many respects company law has already been modernised far ahead of the law for industrial and provident societies. I am thinking particularly of audit and accounting exemptions, which leave industrial and provident societies substantially disadvantaged and having to incur considerable additional costs, in comparison with companies. Can she reassure me that that has not been overlooked?

As my hon. Friend knows, because he has raised these issues on many occasions with me and with the Treasury in various contexts, we are aware of the nature of that disadvantage and will give it due consideration when we consider our priority areas for reform. Of course, my hon. Friend will have to wait for a little while yet until we make those priorities clear, but I am sure he has the necessary patience.

The point made by my hon. Friend the Member for Edmonton (Mr. Love) about a level playing field for charities is indeed outside the scope of the Bill, which is purely about the differences between companies and industrial and provident societies. However, he makes a good point, and there will be a separate strategy and review of charities, which will consider changes to charity law in due course. I am sure that that review will consider the issue that my hon. Friend highlights.

Having fully considered the amendment proposed by my hon. Friend the Member for South Derbyshire (Mr. Todd), the promoter of the Bill, I am content that the amendment makes the necessary provisions. The Channel Islands authorities support the amendment and I can, therefore, recommend it to the House.

Amendment agreed to.

Amendment made: No. 6, in page 4, line 7, at end insert—

'(8) In this section "conveyance" means any document for the creation, transfer, variation or extinction of an interest in land.
(9) In subsection (5)(c) of this section the references to execution include—
  • (a) purported execution; and
  • (b) the doing of any act which (though not by itself execution) combined with other acts constitutes execution or purported execution.'.—[Mr. Todd.]