Exempt Charity Status – What this means for Sixth Form Colleges?

Sixth form colleges are governed by corporations or academy trusts, as exempt charities. We explore what this means and complying with their duties.

As exempt charities, corporations and academy trusts cannot register with the Charity Commission but remain subject to and must comply with charity law. They have the Secretary of State for Education as their principal regulator. A memorandum of understanding is in place between the Charity Commission and the Secretary of State to assist with regulation.

The Charity Commission does retain certain significant powers in relation to exempt charities, including in relation to certain regulated changes to the articles of association of academy trusts (it's constitution) involving the objects, application of property on dissolution and payments or other benefits to members, trustees or connected persons.

The Charity Commission also has power to direct an exempt charity to produce documents or to suspend or remove a governor or trustee, but will only exercise such powers with Department for Education (“DfE”) consent or at their request in accordance with the agreed memorandum of understanding.

As principal regulator, the Secretary of State also has a role. The Charity Commission's guidance Exempt Charities (CC23) says a principal regulator: must promote compliance with charity law; checks charity law compliance; can ask the Charity Commission to use its regulatory powers (such as undertaking a statutory inquiry); works with the Charity Commission to make sure that an exempt charity is accountable to the public; and receives reports on matters of material significance from auditors.

However, there is some question whether the DfE or Education and Skills Funding Agency ("ESFA"), both of which act under delegated powers from the Secretary of State, have the requisite charity law expertise to discharge the functions as principal regulator or even at times to recognise or acknowledge that such a duty exists on the Secretary of State.

Where a corporation is seen to be failing the FE Commissioner and/or ESFA will undertake a diagnostic assessment, independent business review or structure and prospects appraisal, reconstitute or dissolve the governing body or direct a structural solution. In the case of an academy trust, the DfE is likely to step in and compel the re-brokering of the trust rather than consent to any use by the Charity Commission of its powers.

Why then should corporations and academy trusts be concerned or take any note of their exempt charity status?

The manner in which the Secretary of State, ESFA and/or FE Commissioner seek to exercise their powers does not diminish the need for corporations and academy trusts, as exempt charities, to comply with charity law.

Also, many of the problems that may lead to the failure of a corporation or academy trust can be avoided by a clear focus on effective governance and leadership, which is in itself consistent with exempt charity status and charity law duties.

As charity trustees, governors of corporations and trustees of academy trusts are subject to various duties: to comply with their governing document (being the instrument and articles of government for a corporation and the articles of association for an academy trust); act in the best interests of the corporation or academy trust; manage conflicts; avoid private benefits; and act with reasonable care and skill.

As governors and trustees, they also need to ensure clarity of vision, ethos and strategic direction; oversee financial performance and make sure money is well spent; and hold the principal or chief executive officer and senior executive to account for educational performance.

Governors and trustees can be assisted in ensuring compliance with charity law and their duties by adopting the Charity Governance Code which has been generated by charity sector bodies as a practical tool to: ensure compliance with the basic duties of charity trustees and with legislation and regulation; and develop exemplary leadership and governance and the attitudes and culture to ensure future success. For each principle – (1) organisational purpose (2) leadership (3) integrity (4) decision making, risk and control (5) board effectiveness (6) diversity and (7) openness and accountability – the Code confirms why it's important, the key outcomes that should be observed and the recommended practice. There are also other codes such as the UK Corporate Governance Code and the Code of Good Governance for English Colleges. Corporations must adopt one of the three codes as a condition of their funding while academy trusts are free to choose. For a comparison of the three codes, please see the Sixth Form Colleges Association (SFCA) Occasional Paper The Governance Codes: How Do They Compare? which can be obtained from the SFCA or by email to graham.shaw@wrigleys.co.uk.

In summary

For corporations and academy trusts, a clear focus on exempt charity status, assisted by a suitable governance code, is the bedrock of effective governance and leadership which can ensure their success for the benefit of their students and communities.