Examples and case studies

‘If the Committee decide by a majority at any time that on the ground of expense or otherwise it is necessary or advisable to discontinue the use of the Trust subjects in whole or in part for the purposes herein mentioned they shall call a meeting of the inhabitants of the age of eighteen years and upwards in the said District of which meeting not less than Fourteen days' notice shall be given by posting a copy of the notice containing a copy of the proposed Resolution to be moved in a conspicuous place or places on the Trust subjects and by advertising in a newspaper circulating in the said District and if such decision shall be confirmed by a majority of such inhabitants present at such meeting and voting the Trustees may, subject to the consent of the Secretary of State for Scotland (or the Scottish Council of Social Service on his behalf) let or sell the Trust subjects or any part thereof and all monies arising from such letting or sale (after satisfaction of any liabilities properly payable thereout) shall be applied either in the hire or purchase of other subjects approved by the Committee and be held upon trust for the purposes and subject to the provisions hereinbefore written or as near thereto as circumstances will permit or towards such other charitable purposes or objects for the benefit of the inhabitants of the said District as may be approved by the Secretary of State for Scotland (or the Scottish Council of Social Service on his behalf) and in the interval such monies shall be invested in the name of the Trustees and any income arising there from shall either be accumulated (for such time as may be allowed by law) by investing the same and the resulting income thereof in like manner as an addition to and to be applied as the capital of such investments or shall be used for any purpose for which the income of the Trust subjects may properly be applied’.

For charities which are Trusts, there are several factors which may be relevant in assessing whether trustees have particular powers. However, this is a difficult and contentious area of law and is frequently a source of uncertainty because trust deeds may be capable of different interpretations. If in any doubt, trustees should seek independent (legal) advice to establish whether they have the power to take a certain action or make a particular change.

The trustees’ powers will consist firstly of all of the powers which are set out in the trust deed. Additionally, legislation (primarily sections 3 and 4 of the Trusts (Scotland) Act 1921) provides certain additional powers: but only where these do not conflict with the purposes of the trust and only subject to any other legal obligations. In addition, trustees have power to do acts of “ordinary administration”. Therefore, for example, trustees may draw up rules for the running of the charity which describe how meetings will be held and decisions taken. They may vary any administrative sections of the trust deed. Where a trust deed gives trustees wide discretion in respect of a particular matter, other similar and related powers may be assumed, i.e. if a trust deed states that “trustees shall have complete discretion in applying the trust fund to any of the beneficiaries”, then it would be reasonable to assume that unless otherwise stated the time and place and manner of making such payments is a matter for the trustees’ discretion.

Where discretion is given more generally, for example a deed states that “trustees shall do anything and everything which may in their uncontrolled discretion seem to them to be probably or possibly helpful to the purpose of the Trust”, it would be reasonable to assume powers to do almost anything including varying terms as long as these remained consistent with the original purposes. It would not be reasonable to assume a power to dissolve the trust or alter the purposes.

A village hall applied to OSCR for consent to wind up and transfer its assets to a similar charity in the area which was a SCIO. OSCR can only consent to a charity winding up if the charity’s governing document gives the charity trustees the power to take the action they propose.

In this case, although the trust deed gave the trustees the power to let or sell the Trust subjects, it also specifically stated that any monies arising from such letting or sale “shall be applied either in the hire or purchase of other subjects approved by the committee and be held upon trust for the purposes and subject to the provisions hereinbefore written or as near thereto as circumstances will permit or towards such other charitable purposes or objects for the benefit of the inhabitants of the said district”.

Therefore, the proposal to transfer all assets of the hall to another charity was not permitted because the clause in the Trust Deed which the trustees thought gave them the power to transfer and dissolve actually required any capital to remain within the existing trust even where the current hall was sold and new charitable purposes are chosen. The trustees therefore did not have the power to transfer the assets and property, or wind up the Trust.

The ‘dissolution clause’ in this charity’s trust deed was one that is replicated in the Trust Deeds governing many village hall charities. Although termed a ‘dissolution clause’, it does not actually allow the charity to dissolve! We have included the content of this clause at Annex 1. If a Trust Deed contains this clause, the trustees do NOT have the power to wind up or transfer the charity’s property to another charity.

The model trust deed adopted by many village hall charities contains the following ‘Amendment’ clause:

‘These presents may be amended by a Resolution of a majority of the Trustees then acting if Government legislation is passed at any time necessitating such amendment’

Some village halls have queried whether the introduction of the 2005 Act and the availability of the SCIO would be regarded as government legislation necessitating certain amendments to the constitution - for example the power to wind up. The introduction of the 2005 Act might have made such changes ‘desirable’, but would not make them necessary.

Therefore, village halls cannot rely on this clause to give them the power to change the dissolution provisions.

As many village halls are governed by a Deed of Trust which will have been drawn up many years ago, they often find that the provisions contained in the Deed are outdated and unnecessarily restrictive. However, we also typically find that trustees are very limited in the changes they can make to the Deed because they can only make changes which the founding document (and Trust law) give them the power to.

Charity trustees should also be aware that changing the content of the constitution usually involves drafting a competent legal document, normally a deed of variation or supplementary deed of trust. Even where it is possible to amend the deed of trust, the end result will still be that the charity’s legal form is a trust.

What changes did the charity want to make?

To wind up and transfer their assets (including the hall itself) to a new incorporated charity with similar objectives.

What were the issues?

The charity’s constitution was a by a Deed of Trust dated 1876, which was thoroughly out of date and did not give the trustees the power to dissolve or transfer the assets to another charity. Trustees can only carry out actions permitted by their constitution.

What was the proposed solution?

To seek OSCR’s approval to transfer charity assets to the new incorporated charity and then wind up.

What type of reorganisation scheme did they apply for?

For ‘transfer of the property of the charity (after satisfaction of any liabilities) to another charity’.

Which reorganisation conditions were met?

That ‘some or all of the purposes of the charity have been fulfilled as far as possible or adequately provided for by other means’.

The trustees suggested that this condition was met because the proposed recipient charity would be able to provide recreational and meeting facilities in the hall and provide space for educational activities for all inhabitants of the community, particularly young people. The trustees also considered that the purposes had been fulfilled as far as possible because it no longer had the funds or income to keep and maintain the building “in a complete state of repair, both externally and internally and insured against damage or loss” as laid down in the founding document.

Which reorganisation outcome was met?

The charity reorganisation would ‘enable the resources of the charity to be applied to better effect for charitable purposes consistently with the spirit of its constitution, having regard to changes in social and economic conditions since it was constituted’.

The charity was having difficulty identifying and appointing suitable trustees as a number of the trustees were appointed on an ex-officio basis and it was proving difficult to persuade the successors to these posts to take up position as trustee. It was also proving difficult to recruit other trustees, particularly in view of the condition of the hall and potential personal liability which could arise for trustees. A new charity had therefore been set up as a SCIO with the express aim of taking over ownership of the hall. The SCIO was formed on the advice of various potential funders, with refurbishment estimates and plans ready.

The hall was not generating enough income from rent to provide for the upkeep and maintenance of the hall. The hall was in need of repair and the constitution did not give the trustees the power to raise funds to make the necessary repairs. The trustees had been unable to access any funding to help towards these costs as title to the hall was held in the names of the trustees. The SCIO structure would enable the proposed beneficiary charity to apply for funding towards the costs of essential and required maintenance. The transfer would also result in the charity's assets being administered by a newly formed organisation benefitting from a modern governance structure and updated constitution.

What happened next?

The application was approved, and all assets were transferred to the new SCIO, resulting in the ‘old’ charity being wound up.

What changes did the charity want to make?

To wind up and transfer their assets (including the hall itself) to another charity operating in the village.

What were the issues?

The charity’s constitution (Trust Deed) did not give the trustees the power to dissolve or transfer the assets to another charity. Trustees can only carry out actions permitted by their constitution.

What was the proposed solution?

To seek OSCR’s approval to transfer charity assets to the other charity and then wind up.

What type of reorganisation scheme did they apply for?

For a ‘transfer of the property of the charity (after satisfaction of any liabilities) to another charity’.

Which reorganisation conditions were met?

That ‘some or all of the purposes of the charity can no longer be given
effect to’.

The applicant suggested that the language of the Trust Deed in setting out its purposes was antiquated and could not reasonably be regarded as reflecting the current use of the hall, nor the activities of a modern charity operating for the benefit of its community in the provision of a village hall. The purposes no longer described the charity’s activities, and if they were strictly adhered to, the needs of the community would not be best served. As a consequence the hall might fall into disuse.

Which reorganisation outcome was met? 

The charity reorganisation would ‘enable the resources of the charity to be applied to better effect for charitable purposes consistently with the spirit of its constitution, having regard to changes in social and economic conditions since it was constituted’.

The trustees felt the reorganisation would result in better use of limited resources, as there was no need for two similar charities within the village, particularly as they had shared directors/committee members. Also, from a practical point of view the aims and aspirations of both were so similar that in the majority of cases there was no need for a separate decision making process. Similarly there were not enough people to sustain both separately.

The trustees suggested that the proposed recipient charity shared their values and the reorganisation would result in many advantages. The recipient’s purposes were up-to-date and relevant, its area of benefit was similar to their own having been expanded to incorporate the growth of the village; it reflected current legislation (the Land Reform Act) which has enabled the community to purchase land; it allowed sufficient time for the creation of accurate accounts and allowed the trustees to update the constitution if circumstances so required.

What happened next?

Although OSCR approved the reorganisation scheme, the charity trustees have (to date) not yet transferred the property. Initially, they found it difficult to identify who actually held title to the hall, as the trust deed referred to ex-officio positions which no longer existed. Most of the management committee lost interest in taking this forward, leaving responsibility for the transfer with one individual.

Learning point

Where the reorganisation scheme is for a transfer of the charity’s property to another charity, OSCR’s approval of the scheme does not make the transfer happen. The charity trustees will still be responsible for finding out who holds title to the property and ensuring it is legally transferred. Charity trustees should investigate this before applying for such a reorganisation scheme.