Wick Academy Development Fund – implications for charity trustees

What was the significance?

After receiving various complaints regarding the charity’s failure to apply these funds in accordance with its charitable purposes, OSCR began to investigate the charity’s affairs in September 2010. OSCR had repeatedly tried to engage with the charity since that date in an attempt to assist the trustees to resolve the situation.

How did OSCR react?

OSCR finally took the view that there was no realistic prospect of the trustees ever undertaking any activity to apply these funds. They were failing to meet their statutory duties of care and responsibility as charity trustees by failing to provide public benefit. The OSCR inquiry report notes that the charity didn’t carry out any activities in support of its charitable purposes after it stopped selling the tickets. The trustees did make some enquiries during this time about how they could apply the funds with the local authority in connection with some free land that could potentially be used to benefit Wick High School. These discussions were ultimately unsuccessful however and did not progress any further. This inactivity meant that the charity was at risk of being removed from the Scottish Charity Register, putting the accumulated funds at risk. OSCR took the view that “there was no realistic prospect of activities being undertaken by the charity trustees in furtherance of the charity’s objects. The charity is not providing public benefit”.

What was the result?

OSCR viewed these concerns so seriously that on 13 October 2020 they took the step of preventing the trustees from dealing with the charity’s funds without their consent, in order to protect the charity’s assets.

All OSCR’s further attempts to engage with the trustees were unsuccessful. OSCR was also unable to consent to the proposal made by some of the trustees to wind up the charity. The specific reasons for this weren’t disclosed in the report.

OSCR therefore took the step of applying to the Court of Session to appoint a judicial factor to manage the charity’s affairs. This appointment was made on 7 January 2021. The judicial factor carried out an investigation into the charity’s financial affairs and identified three local charities to receive these accumulated funds. The proposed distribution of funds was approved by the Court of Session on 25 November 2021, allowing the judicial factor to proceed with the distributions and thereafter dissolve the charity.

Conclusion

Although this is a small charity, there are some important lessons we can draw from this case:

Every charity has an ongoing duty to actively continue to meet the requirements of the Scottish charity test and public benefit test by carrying out its charitable objects and providing public benefit. OSCR’ s guidance on “Meeting the Charity Test” states that if a charity does nothing for a prolonged period of time, then it is unlikely to be providing public benefit, so it may fail the charity test.

OSCR recognise that there are some exceptions to this, for so called “inactive charities”. These include a charity that is set up to act in the future when a particular event occurs and which remains dormant in the meantime. It also applied to “legacy charities”, where a charity is taken over by another charity but still remains on the charity register with OSCR’s consent to receive legacies, which are then passed over to the successor charity. Even a legacy charity must demonstrate that it continues to meet the charity test.

There is no set level that a charity must deliver to demonstrate to OSCR that it is providing public benefit, the level will vary from charity to charity depending on its size and charitable purposes.

Failure to provide public benefit for a prolonged period without approval from OSCR can be regarded as being misconduct in the administration of a charity by the trustees as well as a breach of the statutory duties of care and responsibility owed by them.

The trustees were given every opportunity over a number of years to work with OSCR to resolve these issues, and still failed to do so, placing the charity’s funds at risk. OSCR’s actions in this case were taken as a last resort and out of necessity only to protect the assets of the charity.

The trustee’s actions irreparably damaged the reputation of the charity, angering the local community they were set up to assist and from whom the funds were raised. This has wider reputational implications for the charity sector as a whole. Although the trustees were not formally disqualified from acting as charity trustees in future, this case could still potentially affect any other personal positions that they hold now or in the future.

If you have questions, or need advice relating to a similar situation, our charity law experts are here to help.

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