For charities and their trustees, the ‘charity test’ is getting harder to judge, as a recent legal decision has highlighted
New Lanark: blurred lines on commercial vs charitable
The first legal decision illustrates the difficulty of deciding whether or not your charity’s activities pass the ‘charity test’. This is particularly relevant when lockdown and social distancing have forced many charities to find new ways to generate income.
The case concerns the charity New Lanark Trust, which manages the UNESCO World Heritage Site at New Lanark – a site many of you may have visited.
The details are technical, but in a nutshell, New Lanark Trust owns two trading companies which the Scottish charity regulator, OSCR, refused to register as charities. This was because OSCR said the shops, café, hotel and other businesses at the site were there to produce income for the Trust, rather than for public benefit.
The trustees thought differently, saying the primary purpose of these businesses was to enhance the presentation of New Lanark as a living village and contribute to the visitor experience. They therefore had a charitable purpose. After several years of legal arguments and appeals, the Court of Session accepted their argument.
"These cases highlight to trustees of all charities the value of getting good legal and governance advice."
The court ruling applies only to New Lanark and not to charities generally, but it illustrates the increasing difficulty of deciding whether charities’ activities are primarily commercial or charitable.
It also highlights to trustees of all charities the value of getting good legal and governance advice before embarking on new types of commercial activity.
Kids Company: a round of applause for trustees
The second legal case in the news concerns the charity Kids Company which closed its doors in 2015, amidst much media criticism. The aftermath has rumbled on for years, including an attempt to have the CEO and seven former trustees disqualified from being directors of other organisations.
A High Court decision earlier this year cleared them all of any personal wrongdoing and the judge praised the trustees as “highly impressive and dedicated individuals who selflessly gave enormous amounts of their time”. She also praised the care they showed and “the fact they did not take the much easier path of not getting involved in the first place”.
Given the value of trustees’ contribution to society, the judge’s praise for their work is very welcome and we hope it will encourage others to become trustees themselves. Even so, the case also gives trustees a useful reminder to be on the alert for issues or rumours that might damage their or their charity’s reputation.
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