Charity lifecycles: dissolution and evolution
Martin Tyson, OSCR's Head of Regulation and Improvement, reflects on the role of the charity regulator in the lifecycle of Scotland's charities and discusses the trends OSCR has seen over the last year.
In his article in December’s TFN (Charities in Memoriam – who we lost in 2023), Niall Christie discussed charities which closed last year and OSCR’s role in the process of charities dissolving in Scotland. Now that the year has turned, it might be useful to put some of that in context. What does it mean when a charity dissolves? Are more charities dissolving in Scotland now? How does this compare with the number of new charities starting up?
One of OSCR’s functions is to decide whether or not to give consent to charities that wish to wind up. During 2023, 396 charities applied to OSCR for consent to dissolve. This is a slight increase on the 373 that applied to dissolve in 2022.
Charities dissolve for all sorts of reasons. Some, like some of the organisations mentioned in the December article, need to close because of the stresses of adverse funding decisions or operating conditions. In other cases, charity trustees will decide to close because their charity has fulfilled its purposes or because changes in society of their environment have made the way it operates less relevant. Other charities close their doors as they recognise that their activities would simply be better carried out by another organisation. Finally, a proportion of newly registered charities will simply not get going as circumstances change and plans don’t work out.
The overwhelming majority of charity dissolutions in Scotland happen in a situation where the charity is solvent, and they can meet their financial obligations. By making sure there is an orderly wind-up, these trustees are fulfilling their duty to the charity’s purposes and beneficiaries in making sure any assets left over continue to be used for the charity’s purposes. As part of our decision to grant consent, we must be confident that any assets a charity has left over when it dissolves continue to be used to benefit the public in line with the charity’s constitution. We publish notices on our website for SCIOs (Scottish Charitable Incorporated Organisations) that are dissolving and this enables greater transparency for beneficiaries, creditors and other stakeholders.
Dissolution can also involve a rebirth or refresh or a charity. Around 20% of the 396 charities that sought to dissolve last year were unincorporated charities looking to dissolve and transfer their assets and undertakings to a new SCIO which will start operating immediately with a similar name, and the same purposes, activities and personnel - and all the advantages of incorporated status for governance and funding.
As regular visitors to our website will know, OSCR is also working hard to deal with charities that no longer meet the charity test, and in recent months we have removed 61 charities from the register where we could not find evidence that they met the test since they had either ceased to exist or have failed to engage with the regulator. Last year the Scottish Parliament passed new legislation which will allow OSCR to more easily remove charities from the register when they fail to meet their regulatory obligations, so we expect to see the number of charities which we remove from the register to increase over the next couple of years as this new power take effect.
It’s important also to look at the other end of a charity’s lifecycle, because with each charity which has decided to cease operating, many more organisations are looking to gain charitable status.
While 398 charities applied to us for consent to dissolve last year, OSCR also received 983 applications to register new charities. While no-one should underestimate the difficult conditions facing charities at the moment, the evidence is that the sense of need and the impulse to help that underpin the sector remain strong.
OSCR looks forward to supporting all charities in Scotland over the next year to ensure a strong sector. We’ll continue to regulate in a way which builds trust and confidence in Scottish charities, holds charities to account and strengthens their ability to positively contribute to society.
This article first appeared in the January 2024 edition of TFN Magazine (page 6-7).