We are pleased to provide our comments on the Scottish Law Commission Consultation Paper on Public and Charitable Trusts: Amalgamation of Functions and Common Investment Funds.

Questions 1 to 5

While we accept that the proposals which are consulted upon are well-meaning and are intended to promote cost savings and other efficiencies for the charity sector in Scotland, we are sceptical about the need for a statutory facility to enable charitable or other public trusts to amalgamate administrative functions. Almost all charities will already have the ability to enter into such arrangements either on a contractual basis (which can be as simple or as complex as is required on a case to case basis) or by obtaining professional assistance.

We should imagine that any statutory style of agreement would require to be so flexibly drawn up in order to cover a wide range of potential uses that it would contain a limited degree of useful content. Since style contracts for a wide range of different uses already exist and are commercially available, we see no particular benefit in having statutory styles available in addition.
We question whether the Office of the Scottish Charity Regulator (OSCR) should have any role of intervention in charities' decisions to amalgamate functions or make other joint working arrangements, unless some breach of the Charities and Trustee Investment (Scotland) Act 2005 is involved. In such a case, OSCR would already have the powers of direction afforded it under the 2005 Act. We would not support the notion of an OSCR veto to a charity's ability to withdraw from a joint working arrangement. This seems to us to remove from charity trustees the requirement to think independently and, in their discretion and within the bounds of the law, to act in the best interests of the charity.

Finally, we do question whether charity trustees can be said in many cases to be acting in the best interests of their charity where they take a decision to prolong the life of a charity which to all intents and purposes has served its useful lifespan and can only operate effectively and efficiently by sharing resources. In such cases, it seems to us that there is a more fundamental issue which charity trustees should be considering – namely, the existence of the charity itself and issues of potential mergers or winding up. In cases where the ongoing future of the charity is desirable and is in the charity's best interests (which will not always be the case), then the ability to enter into contractual arrangements which is already generally available ought to suffice to provide a workable solution. We do not see that a statutory style subject to OSCR vetoes adds anything useful to that situation.

Questions 6 to 9

While we agree in principle with the notion of CIFs and CDFs being created under Scots law, we do question whether there is likely to be sufficient demand for such funds and would be interested in views from the wider fund management industry. To the best of our knowledge, no new CIF has been released on the market for around two years and new charity-focussed investments can often be provided for ably and efficiently through other structures, including for example unit trusts.

Any new Scottish CIF would be competing against not just existing English & Welsh CIFs, but against other existing structures including separate charity unit classes of mainstream funds, which are also becoming more common. This also serves in our view to reduce any potential demand for Scottish CIFs.

We question whether OSCR is sufficiently resourced and qualified to take on the regulation of Scottish CIFs and for a product which is likely to have a very low demand level, question whether it is worth even beginning to develop such a qualified resource within OSCR, with a financial regulator a more appropriate one for this structure.

All things considered, we question whether there is sufficient demand to justify the creation of a Scottish form of CIF. If there is to be one, OSCR does not seem to be the appropriate regulator (although if a CIF is a charity, OSCR would need to recognise it initially).

If you would like us to elaborate on any of the comments we have made in this response, then we will be happy to do so. Please feel free to contact us at charities@turcanconnell.com.

To download the response in pfd format, click here.