Complying with the cy-pres scheme procedure

Two recent cases in the First-tier Tribunal (Charity) illustrate the passions that can be stirred when the Charity Commission makes a cy-pres scheme to change the purposes of a charity.

The commission is able to change a charity's purposes in any of the cy-pres occasions set out in section 62(1) of the Charities Act 2011. Those circumstances usually involve a 'failure' of the charity's purpose of some sort. In Dunsfold, for example, the village school had closed and the scheme provided for alternative use of the site. They also include cases where a merger of charities with similar purposes will ensure the more effective use of charitable assets. This was the case in Lytham, where the scheme facilitated the merger of two independent schools.

Publication necessary

The scheme-making procedure involves giving public notice of the proposed scheme. The commission takes into account representations made by the public, and either makes the scheme (with or without modification), or abandons it altogether. The procedure, which is laid down in section 88 of the Act, permits the commission to dispense with public notice where it determines that publication is unnecessary.

The commission believes that publication is necessary in cases where there is signifi-cant public interest in the changes that the scheme will make, or where there is opposition to those changes. Examples of cases of that kind include schemes which will change the use that can be made of community assets, or which will result in beneficiaries being displaced.

Of course, ideally, trustees who apply for a cy-pres scheme will already have consulted the charity's stakeholders. Consultation may show that there is no opposition to the proposed changes, and hence that public notice is unnecessary.

However, effective stakeholder consult-ation can provide other benefits. If the charity's supporters and beneficiaries are told about the proposed changes, and have the opportunity to influence changes that will affect them, they are more likely to buy in to those changes. By contrast, if stakeholders first learn of proposed changes to the charity's purpose when the draft scheme is published, their hostility may well be exacerbated.

Appropriate consultation

For these reasons, the commission expects trustees to have carried out an appropriate consultation exercise before they apply for a cy-pres scheme (except where the changes involved are so minor that consultation is plainly unnecessary). The form of consultation is a matter for the trustees and will depend on the circumstances.

The legal justification for this policy is that trustees are bound to acquaint themselves with the facts that are relevant to their decisions. Plainly, the relevant facts in a decision to apply for a cy-pres scheme include the views of stakeholders who will be affected, and whose response may well have important repercussions for the charity.

Early consultation would also be consistent with the general tendency of the legislation. Section 121 of the Act, for example, obliges trustees who hold land for use for a charitable purpose to invite (and consider) representations from the public before selling it. And section 88(8) provides that public notice of scheme proposals should contain 'sufficient and appropriate' particulars of the proposals, or directions for obtaining information about them. The best source of information about the changes which the scheme will make will usually be the trustees themselves. Trustees also need to bear in mind that objectors who take their case to the tribunal by way of appeal will find that the tribunal encourages a negotiated settlement (as it did in both the recent cases). That underlines the importance of taking stakeholders' views into account sooner rather than later.