Member Article

The Charity Commission enjoys a range of protective powers under the Charities Act 2011. This note looks at the conditions that must be met before the Commission may exercise those powers, with a specific focus on the powers contained in s76 of the Act.

Context

The Commission, as stated in s15 of the 2011 Act, is tasked with ‘identifying and investigating apparent misconduct or mismanagement in the administration of charities and taking remedial or protective action in connection with misconduct or mismanagement in the administration of charities’. The Commission is aided in fulfilling that function by the various protective powers that it enjoys under s75A to 87 of the Act.

The protective powers

This note is focussed on the powers contained in s76 of the Act, and particularly those found at s76(3)(g), that being the Commission’s power to appoint (in accordance with section 78) an interim manager to act as receiver and manager in the property and affairs of the charity. That said, the test that must be met before those powers may be exercised is the same test that applies to various other powers in the Act (see eg. s79 and s84B), so there is scope to read the content of this note across to other examples of protective powers.

When those powers may be exercised

Many of those powers, including those at s76, rely on a two-stage test being met before they may be exercised, that test being (see s76(1)):

1. The Commission must have instituted a s46 statutory inquiry into the relevant charity; and
2. There is or has been a failure to comply with an order or direction of the Commission, a failure to remedy any breach specified in a warning under s75A, or any other misconduct or mismanagement in the administration of the charity; or
3. That it is necessary or desirable to act for the purposes of protecting the property of the charity, or securing a proper application of the charity’s property or property coming to the charity.

Further, s76(3) provides that upon the above test in s76(1) having been met, the Commission may of its own motion exercise one or more of the powers contained in s76(3). As such, the exercise of the powers is discretionary, and it must be a proper exercise of the Commission’s discretion to use those powers.

Many instances in which the Commission exercises its protective powers turn on there having been misconduct or mismanagement in the administration of the charity (although it is often the case that the acts or omissions complained of as being misconduct or mismanagement will also meet other elements of the two-stage test described above).

Accordingly, it is important to know what may meet the threshold of misconduct or mismanagement, as that is the gateway to the use of the protective powers.

The appointment of an interim manager

Section 78 contains supplementary provisions relating to the appointment of interim managers. It is important to note that the order appointing such a manager may make specific provision as to the functions to be discharged by the interim managers (and may set the interim manager specific investigatory or review tasks), and may provide that the powers and duties of the interim manager are to be exercised or performed to the exclusion of the charity’s trustees. The interim manager discharges their functions under the supervision of the Commission, but is an independent office-holder.

The Charities (Receiver and Manager) Regulations 1992 provide that it is the Commission that determines the amount of the interim manager’s remuneration, and the general rule is that any such remuneration is payable out of the income of the charity.

The meaning of ‘misconduct’ and ‘mismanagement’

There is no statutory definition of either term. Rather, they are ordinary English words and should be given their ordinary meaning (Scargill v Charity Commissioners unreported, September 1998). The First-tier Tribunal has considered the meaning of the terms, and it is important to read Mountstar (PCT) Limited v Charity Commission (CA/2013/0001 & 0003) at [136] to [139] in that regard. My analysis of those paragraphs is that:

• Breaches of a trustee’s duty of care will often amount to misconduct or mismanagement
• It follows that breaches of other duties (such as those as ss171-177 of the Companies Act 2006, where the charity is incorporated) may amount to misconduct or mismanagement
• Commission guidance is instructive, but not determinative, as to whether an act or omission amounts to misconduct or mismanagement
• The acts or omissions complained of must be of some substance to justify the appointment of an interim manager, rather than the use of other protective powers

Examples of misconduct and mismanagement from the case law include:

• Unmanaged conflicts of interest
• Unilateral trustee decision-making
• Failure to comply with s15 action plans
• Failing to act in accordance with the charity’s governing documents
• Unaccounted for charitable funds
• Accounting anomalies
• Risk to charitable funds
• Failure to minute trustee decisions

Challenging the use of protective powers

A charity or its trustees may not welcome the Commission’s exercise of its protective powers (especially where a trustee is being removed, or interim managers appointed to the exclusion of the trustees).

Any challenge to the use of the protective powers must be by way of an appeal to the Tribunal (see Schedule 6 to the 2011 Act). Either the trustees of the charity, the charity itself (if incorporated), any person suspended (if appealing the use of s76(3)(a)) or any other person affected by the order exercising the protective powers has standing to appeal.

The appeal will take the form of a de novo hearing, and the Tribunal must consider afresh the decision, direction or order appealed against, and may take into account evidence that was not available to the Commission when it took the decision under challenge (s319(4)). The burden of proof in such an appeal is with the appellant to show that that the Commission’s exercise of its protective powers was wrong (Knightland Foundation v Charity Commission [2021] UKFTT 0365 (GRC) at [51]).

Conclusion

The Commission has a wide armoury of statutory protective powers, including those at s76(3) and the power to appoint an interim manager (s76(3)(g), as supplemented by s78). Often, the threshold that must be met for the exercise of those powers is for there to have been misconduct or mismanagement in the administration of the charity. If the Commission elects to exercise its statutory protective powers, the route of challenge for a charity and its trustees (if desired) is by way of an appeal to the Tribunal, which takes the form of a de novo hearing.