SCVO Response: Scottish Government consultation on Scottish Charitable Incorporated Organisations – Dissolution Regulations Amendments

About our response

SCVO welcomes the opportunity to respond to the Scottish Government consultation on proposed amendments to the Dissolution Regulations for Scottish Charitable Incorporated Organisations (SCIOs).

SCVO was a contributing member of the SCIO Dissolution Working Group 2019 and we therefore welcome the Scottish Government’s commitment to now take the resulting recommendations forward.

Our response is informed both by the conclusions reached by the SCIO Dissolution Working Group 2019 and by feedback garnered via the support that SCVO offers to the voluntary sector in Scotland, in particular our Information Service.

Despite our support for the Scottish Government’s commitment to progressing the recommendations of the SCIO Dissolution Working Group 2019, we acknowledge that this has resulted from ongoing discussions around a wider review of charity regulation in Scotland. With this in mind, we would like to use this opportunity to again call for the Scottish Government to undertake a comprehensive, holistic, and independent review of the regulatory landscape for the voluntary sector in the near future.

Our response

Q 1 Do you agree or disagree that a SCIO should be ‘inactive’ once it submits an application for dissolution?
SCVO agrees that a SCIO should be inactive once it submits an application for dissolution.
We acknowledge that the Scottish Government is not proposing to include a three-month period of inactivity before a SCIO can submit an application for dissolution, due to concerns that trustees may become disengaged with the process. However, we ask that an alternative shorter time period is considered to ensure concerns raised by the SCIO Dissolution Working Group 2019 - that including a period of inactivity would ensure accurate information is given to OSCR at the time of application and that the SCIO is unlikely to then enter into credit agreements or take on further assets or liabilities - are addressed.
We would also like to highlight the importance of providing clear guidance on how ‘inactive’ will be defined in practice.

Q 2 Do you agree or disagree that a SCIO should inform OSCR of any material changes in its assets and/or liabilities after it submits an application for dissolution?
Agreed

Q 3 Do you agree or disagree with the changes set out in Annex 1 on the solvent dissolution application?
SCVO welcomes the Scottish Government’s consideration of removing the requirement to submit a declaration of solvency as part of an application for dissolution as recommended by the working group in 2019. We would like to however use this opportunity to note that this proposal was recommended based on the assumption that the SCIO is ‘clearly inactive’, thereby reducing the necessity to include a declaration. As outlined in our response to question 1, the proposal above does not directly reflect the working group’s recommendation that the SCIO should be inactive for a period of at least three months, and so we ask the Scottish Government to consider the implications that not implementing a period of inactivity may have.
We welcome the changes to the notice of application for dissolution of a solvent SCIO that removes inconsistencies in language regarding transferring assets between the Dissolution Regulations and the Scottish Charitable Incorporated Organisations Regulations 2011 (the General Regulations).
We would also note the importance of making sure these forms are easily accessible to everyone who may need to use them and that clear guidance for filling out these forms is provided to ensure that trustees do not face additional administrative burden.

Q 4 Do you agree or disagree with the changes set out in Annex 2 on the insolvent dissolution application?
SCVO welcomes the changes to the forms that removes the inconsistency, between the Dissolution Regulations and the Scottish Charitable Incorporated Organisations Regulations 2011 (the General Regulations), regarding the transfer of surplus assets.
We would again like to highlight the importance of making these forms accessible and providing clear guidance to ensure that trustees do not face additional administrative burden as a result of these changes.
We would also encourage the Scottish Government to reconsider the working group’s recommendation to give consideration to a process for the dissolution of insolvent SCIOs with debts of less than £1,500, which has not been taken forward in this consultation. This would be intended to prevent trustees in these cases becoming disillusioned with the dissolution process and potentially indirectly creating inactive SCIOs.

Q 5 Do you agree or disagree with our proposal to allow OSCR to publish notices anywhere it considers appropriate?
Agreed

Q 6 Do you agree or disagree with the changes proposed to the publication period for the notice of a solvent SCIO’s dissolution application?
SCVO welcomes the Scottish Government’s proposal to extend the publication period for notices of a solvent SCIO’s dissolution application.
However, we ask the Scottish Government to consider further extending the publication period to three months, as opposed to the proposed 28-day minimum to 90-day maximum. A three-month period was recommended by the working group to allow more time for interested parties to make representations regarding the dissolution of a SCIO. A three-month period would also align the publication period for SCIOs with the publication period for dissolution notices for solvent Charitable Incorporated Organisations (CIOs) in England and Wales.
We acknowledge that the working group's recommendations have been accepted in part. We encourage the Government to reconsider the recommendation that OSCR should be given greater flexibility on setting timescales for publishing notices and decision-making regard applications. These timescales should also only explicitly apply to complete and/or competent applications. This would give OSCR the opportunity to request and receive information relevant and necessary to progress an application and avoids cases where applications are rejected on technical grounds. These rejected cases, can in turn, create cases of inactive SCIOs due to the winding down process adding additional burden on trustee duties.

Q 7 Do you agree or disagree with our proposed approach to amend the requirement for a members’ resolution?
Agreed
SCVO welcomes the Scottish Government's consideration of the challenges for SCIOs in obtaining a member’s resolution at the point of a SCIO’s decision to apply for dissolution. We support the amendment to allow charity trustees to pass a resolution for dissolution in cases where a members’ resolution cannot be obtained due to the inability to contact members because the organisation is in the process of winding down.

Q 8 Do you agree or disagree with the proposal to allow OSCR to remove SCIOs from the Register where the SCIO is not meeting the charity test and has failed to respond to directions issued by OSCR?
Agreed
SCVO welcomes the proposal to allow OSCR to remove SCIOs from the Register where the SCIO is not meeting the charity test and has failed to respond to the directions issued by OSCR, as was proposed by the working group.
Giving OSCR this power would make it clearer how SCIOs can be removed from the Register. It could also save time and money by making the process simpler. The option to petition the Court of Session should remain open, should OSCR deem it appropriate in a case.
We encourage the Scottish Government to implement and make clear the working group’s recommendation that ‘[t]his power should only be exercised following inquiries by OSCR to establish whether the SCIO is active, what assets (if any) the SCIO holds and whether the removal of the SCIO is the most appropriate course of action’.

Q 9 Do you agree or disagree with the proposal to align the process for removing a SCIO from the Register with that set out in section 45A of the 2005 Act?
Agreed

Q 11 Should the removal provisions proposed in Section B only be introduced if there is an ability for restoration?
Yes, our view is that the removal provisions proposed should only be introduced if there is an ability for restoration.

Q 12 What types of SCIO removal should require a route to restoration? Please select all of the situations you think should have a route to restoration:
o Solvent dissolution on application of the SCIO
o Insolvent dissolution on application of the SCIO
o Creditor-led sequestration
o SCIOs that were not meeting the charity test, have failed to respond to a regulation 8 direction and have been removed by OSCR (new proposal - see section B)
o SCIOs that have failed to submit accounts, have failed to respond to OSCR’s reminders and have been removed under a process aligned with Section 45A (new proposal - see section B)
SCVO welcomes the Scottish Government’s consideration of restoring SCIOs that have been removed from the Register.
Given the technical complexity of these proposals, we strongly encourage the Scottish Government to undertake further consideration of the various implications of these changes.
For instance, there may be cases where a SCIO’s removal is caused by objectives not being met or other significant issues; consideration needs to be given as to whether restoration is appropriate in these cases.
We would also like to raise the importance of considering the role of trustees in cases where restoration is being pursued, particularly when former trustees are no longer contactable or trustees must be appointed once a SCIO is restored.
Consideration must also be given to a removed SCIO's assets as well as any implications on an organisation that may have been transferred surplus assets from a removed SCIO, which is later restored.
The issues we raise here are not an exhaustive list and we encourage all aspects of restoring a removed SCIO to be examined.

Q 14 Should it be possible for a SCIO that had no assets at the point of removal to be restored?
Yes, we recognise that there may be circumstances where a SCIO that had no assets at the point of removal may wish to be restored, for example, funding is received at a later stage.

Q 16 Please describe any other situations in which the Court of Session should be able to order the restoration of a dissolved SCIO.
SCVO would like to express its support for the Scottish Government’s consideration of the circumstances in which the Court of Session can restore a dissolved SCIO. The power to restore a SCIO should be open to the Court of Session and details of these circumstances should be clearly outlined in the Dissolution Regulations.

Q 17 What time limit (if any) should apply to restoration of SCIOs by OSCR?
o Less than 6 years
o 6 years
o More than 6 years
o No time limit
As outlined above in our response to question 12, we encourage further examination of the restoration of SCIOs. We also urge the Scottish Government to undertake efforts where possible to ensure that there is consistency with the pre-existing regulations applying to CIOs in England and Wales.

Q 18 What time limit (if any) should apply to the making of court applications for restoration of SCIOs?
o Less than 6 years
o 6 years
o More than 6 years
o No time limit
See our response to question 17.