Question proposed, That the clause stand part of the Bill.

Clause 4 basically does two things. First, it amends the existing power in section 79 of the Charities Act 2011 to allow the Charity Commission, in the course of an inquiry, to establish a scheme in relation to a charity. A scheme is a legal document made by the commission which can amend, replace or extend the trusts of a charity. It can set out new objects and purposes for a charity or amend or remove a prohibition or restriction.

Under the current law, the Charity Commission can make a scheme only where there is evidence of misconduct or mismanagement and a need to protect charity property or secure its proper application. Clause 4 would change that so that the Charity Commission can make a scheme where there is either evidence of misconduct or mismanagement or a need to protect charity property or secure its proper application. The commission considers this change to be necessary to enable it to take action in some cases where only one of the limbs can be demonstrated, but where commission action is necessary. Let me give two examples.

A charity may not be operating or carrying out an obvious charitable activity. There may be a defunct website that the Charity Commission cannot close down. There is an inactive charity bank account containing £5,000. The last known trustees are not responding, but are not so unreasonable as to enable the Charity Commission to prove misconduct or mismanagement. Risk to charity property can be demonstrated, but it would be much harder to prove misconduct or mismanagement. The commission would want to protect the charity’s remaining money by making a scheme to transfer it to another charity with the same or similar purposes. The only thing that can be done otherwise is temporarily to freeze bank accounts. In that case, under clause 4 the commission would be able to act under the risk to charity property criteria alone.

Another example might involve suspected fraud in a badly run charity with poor records and no submission of accounts, where there had clearly been misconduct or mismanagement in the charity, but no money left in the charity’s bank account. In that case, the commission may need to consider making a scheme on the basis of misconduct or mismanagement alone.

Clause 4 would also make an important change and close a loophole in the law by enabling the commission to continue removal proceedings where an individual resigns in an attempt to avoid regulatory action and disqualification. Let me explain, again by way of an example. In the course of a statutory inquiry, the Charity Commission might identify a trustee’s failure to put the interests of the charity first and the fact that the individual had obtained substantial unauthorised financial benefits from the charity. There were clear grounds of mismanagement or misconduct and the commission sought to remove the individual from the charity as a result of that conduct. Removal by the commission also results in disqualification, thus protecting all charities from that individual’s future conduct.

The Commission served notice of its intention to remove the trustee as it is required to do by statute, but the trustee resigned before the period of notice expired, which meant the commission was unable to proceed with the removal, which would have resulted in disqualification, or take any further protective action with regard to that individual and charities more generally. Had the commission been able to continue with removal proceedings, despite the resignation, then removal and resultant disqualification would have been effected and the charity sector protected from an individual bent on abuse of charity. There is evidence from recent commission casework that that particular loophole is being exploited by those who would seek to abuse charities.

The clause was widely supported by the witnesses and the Joint Committee during pre-legislative scrutiny. I hope that the Committee will agree that this is a common-sense provision that closes a significant loophole in the law.

As with the previous clause, we support this measure. We believe it will give the Charity Commission an important power to safeguard the integrity of a charity, particularly its public profile. Misconduct and mismanagement are extremely serious and should be taken extremely seriously. As the Minister identified, the ability to address this loophole has long been missing from the Charity Commission’s powers. Representatives of the sector have not raised concerns with us about this proposal. They understand it is an important opportunity for them to protect themselves against misuse and abuse. On that basis, we are happy to support the clause.

Question put and agreed to.

Clause 4 accordingly ordered to stand part of the Bill.

Clause 5