Consultant Gareth Morgan urges rethink on CIO proposals

A consultation document says existing charities should be able to convert to charitable incorporated organisations, but Morgan says the requirements placed on charities would be excessive

Gareth Morgan
Gareth Morgan

A voluntary sector academic has called on the Cabinet Office and the Charity Commission to rethink its proposed rules for allowing existing charities to convert into charitable incorporated organisations.

In a response to a joint government and Charity Commission consultation on the new CIO regulations, Gareth Morgan, senior partner at the charity consultants The Kubernesis Partnership and emeritus professor of charity studies at Sheffield Hallam University, warned that some of the rules could cause "considerable difficulties" for charities and the commission.

Most charities are registered as companies limited by guarantee with charitable status, meaning they must submit accounts to Companies House as well as the commission.

The CIO form was introduced in 2013, and allows an organisation to register directly with and submit accounts solely to the commission and provide increased protection for trustees should the organisation collapse.

Currently, only newly created organisations are able to become CIOs, but the regulations proposed in a consultation opened on 1 April would allow existing charities and community interest companies to convert.

Morgan said he welcomed the idea of allowing charities to switch their form. He said it would make a huge difference to small and medium-sized charities that no longer wanted to deal with the complications of company law.

But under the proposed rules, charities would be allowed to apply to convert only once they had submitted all their accounts for that year.

Morgan said he believed this requirement was "excessive and will cause considerable difficulties in practice both for the companies concerned and for the commission".

He said most charities ended their financial years on 31 March, and took most of the nine months legally available to file accounts. This meant the commission would be overwhelmed with applications between January and March, Morgan said, which was already a busy time for charity applications.

He said the regulations "should be amended so that the conversion is prohibited only if accounts are overdue either under company law or charity law".

He said: "This is the approach taken in Scotland, where charitable companies have been able to convert to Scottish CIOs since January 2012."

Marion Grace Woolley, a voluntary sector consultant with Kumva Consulting, questioned whether the new model would offer many benefits to charities.

In a blog examining the CIO structure, she pointed out that a charitable company could still exist as a legal entity even its charitable status was revoked, but if a CIO lost its status, it simply ceased to exist, raising questions about what would happen to its assets.

"I sympathise with the desire of the Charity Commission to exercise more control," she said. "But from a client perspective I couldn’t in good conscience tell them to choose a CIO knowing there would be a risk of full closure, whereas a charitable company could continue to operate."

Woolley also questioned whether the commission had the time and resources to devote to guiding organisations through conversions effectively.

The consultation closes on 10 June.

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