Charitable Incorporated Organisations (Insolvency and Dissolution) (Amendment) (No.2) Regulations 2020

Lord Kirkhope of Harrogate Excerpts

Friday 9th October 2020 Lords Chamber

[Lord Kirkhope of Harrogate (Con) [V]]

My Lords, I am participating in this debate on what could at first sight appear to be a very simple piece of rectifying legislation. It comes before us in the same week as did other measures of a similar nature, including the draft Debt Respite Scheme (Breathing Space Moratorium and Mental Health Crisis Moratorium) (England and Wales) Regulations 2020, the debate on which I participated in, as a former Mental Health Act commissioner, last Tuesday.

The general thrust of both measures is to offer a breathing space in the event of debts being incurred during the current Covid crisis. I support that approach, but I believe that these good intentions of the Government need to be reflected in legislation which is both clear and appropriate in specific circumstances, and is fully understood by both those who benefit and those who, as creditors, may feel under their own pressures as a result of Covid and the measures introduced.

On Tuesday, I felt the need to make this point clear in regard to mental health patients in crisis. Today, I want to do so for the charitable incorporated organisations. I find it interesting to note, having read through the entire Hansard record in both Houses of the passage of the Corporate Insolvency and Governance Act 2020—the primary legislation to which this SI is related—how little the plight of CIOs has been mentioned. MPs and noble Lords spoke at length and amended with enthusiasm areas of the legislation concerned with major corporate entities, many of them known to the tabloid-reading public as well as those who got their fingers burnt when dealing with them. As for CIOs, I searched in vain for any real interest in their fate—little wonder that this SI is before us because of drafting errors in an earlier attempt. The Government did point out that the first SI had, as far as they were concerned, done little damage.

It is worth us considering what CIOs are and how they are affected in the present Covid crisis particularly. Originally, many charities had been set up, as noble Lords will know, as charitable companies regulated by both the Charity Commission and Companies House. These are known as community interest companies. It is now often preferred for charities to convert to, or be established as, charitable incorporated organisations, because the process is easy and the benefits tangible. First, the regulation lies solely with the Charity Commission, not Companies House. Secondly, there are clear tax and other fiscal benefits, as well as a clearer path for the receipt of public grants and donations to pursue their core charitable aims, together with eligibility for gift aid on donations. Add to those rate relief on premises, avoidance of stamp duty land tax on property transactions and free software, et cetera, and it is clear that being a CIO has many advantages that help to power such organisations.

The only downside, if you can call it that, is that the Charity Commission requires much greater reporting requirements and regulations, and structure requirements; thresholds for requiring independent examination and an audit are much lower than for other charities. That said, one wonders how often the concessions in this piece of secondary legislation will be required. Can my noble friend the Minister tell us how often, despite the tighter control, CIOs go bust? How often does she think this moratorium might be used and be very helpful? Can she also give us a clearer idea of the status of the insolvency practitioners who must oversee the moratorium? Will future government guidance specify these, and are there any limits on the costs that might be incurred?

I see in the present GOV.UK Covid-19 guidance note that reference is made to the provisions of assistance, but little is said about the details. The guidance offers

“temporary suspension of the use of statutory demands and a restriction on winding up petitions, where a … CIO cannot pay its bills due to the coronavirus emergency”.

That is helpful, but surely in view of the controls and financial status of the CIO, it will or should occur in only a small number of cases. Much of the income comes from the very bodies which could issue statutory demands anyway.

This measure and so many others are no doubt necessary in the present crisis, but it is essential that we keep them proportionate to the perceived problems and try to make them as realistic and understandable as possible.