News analysis: A charity 'amnesty' - would it work?

Nathalie Thomas

The sector is unconvinced by Geraldine Peacock's idea of a deregistration amnesty.

Amnesties are all the rage at the moment. Just days after the Government launched a five-week knife amnesty, Geraldine Peacock, departing Charity Commission chair, suggested transferring the idea to the voluntary sector (Third Sector, 7 June).

Peacock didn't have knives in mind, however, and the aim of an amnesty in this case would be to rid the charity register of thousands of inactive organisations. Between 10,000 and 15,000 charities on the register are now dormant, Peacock estimates, and she believes the problem could be resolved during a six-month period when the usual methods for charities wanting to deregister are simplified and any unused assets donated to other charitable causes.

But what would be the benefits of a sleeker charity register? And would an amnesty really be the best way to go about it?

Initial signs suggest that there is strong support for removing defunct charities from the register, but there's uncertainty about whether an amnesty would be feasible.

"If the original purpose for which a charity was set up is no longer there, it is only sensible that the charity should be wound up and any remaining resources transferred to a similar charity," says Ann Blackmore, head of policy at the NCVO. "However, we are not clear why this should be a six-month 'amnesty' rather than normal good practice on the part of the Charity Commission."

Nor is the commission sure how an amnesty would work. "We think the idea of an 'amnesty' is an interesting discussion point," said a spokeswoman for the commission. "The amnesty concept would need to be further defined before any legal processes involved could be meaningfully thought about."

Even if a reasonable definition could be agreed, there would be many legal barriers, according to Jonathan Brinsden from law firm Bircham Dyson Bell.

"The Charity Commission can't simply ignore 500 years of charity law in the interests of purging its own database," he says. "Charity law would be hard to circumvent in such a sweeping way."

Brinsden likes the idea of an amnesty but thinks there are both legal and practical hurdles that would be difficult to overcome, particularly in the case of small organisations.

He says: "If your income is less than £10,000, there's very little incentive to deregister. You don't have anything to file and you don't have to submit annual accounts to the commission, so it's probably quite easy just to sit there."

He agrees with Peacock that it is simpler to continue as a charity than to deregister, especially in the case of small organisations. If a charity wants to wind up completely, trustees actively have to apply for deregistration. This is a time-consuming process that involves spending all of the charity's assets in line with its objectives and then proving to the commission that this has been done.

Alternatively, if a charity's objectives have become redundant but it wants to continue operating towards different objectives, trustees have to go through what is known as the cy-pres process, which reallocates assets to a closely related purpose.

According to Brinsden, it could be difficult to persuade small charities that are under no legal obligation to do anything at all to undertake either of these protracted processes.

Nevertheless, it's easy to understand where Peacock is coming from. After Chancellor Gordon Brown released millions of pounds from dormant bank accounts for charitable causes, why can't the same be done with inactive charity money?

The difference, says Brinsden, is that banks have access to dormant accounts, but the commission doesn't.

"The banks know who these people are and have access to the funds," he says. In contrast, the commission has no financial details for charities that don't have to file annual accounts and no powers to extract money anyway.

But it's not all doom and gloom. Brinsden suggests the charity sector could find inspiration from the private sector to overcome the problems. Dormant companies have a motivation to wind up because they are obliged to submit dormant accounts and pay an annual fee to Companies House if they don't. There's also a financial penalty if neither of these requirements are fulfilled.

"This way there would be greater pressure on trustees to deal with it rather than not deal with it," Brinsden points out.

He also concedes, however, that if this system were to work, all charities would have to start submitting accounts, regardless of their income. And with this likely to spark some flames about levels of bureaucracy in the sector, it might be one can of worms that is best left unopened.

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