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Companies (Audit, Investigations and Community Enterprise) Act 2004


Section 26 - Community interest companies

195.This section establishes the concept of the CIC.  Subsection (1) provides that the CIC is to be a new type of company (‘company’ here meaning a company registered under the Companies Act 1985 or a former Companies Act).  New organisations applying to be incorporated as a CIC will incorporate as a CLS or CLG (subsection (2)).  Existing registered companies limited by shares or guarantee can also apply to become CICs, and subsection (2)(b) additionally allows a company limited by guarantee having a share capital to convert to a CIC.  It has not been possible to register as a company limited by guarantee with share capital since 1980, so any new company being formed as a CIC will be either a CLS or a CLG without a share capital.

196.Even if a CIC has charitable purposes, it will be treated as not being established for such purposes, so it will not be a charity (subsection (3)(a)) and it will not be able to be recognised as a Scottish charity (subsection (3)(b)).  Therefore, CICs will not be subject to the benefits or obligations of charitable status, nor will they be subject to regulation by the Charity Commission or the charitable jurisdiction of the High Court.  CICs, and outright bequests to them, will not be eligible for any tax reliefs or exemptions which are only available to charities or for charitable giving.  So a donation to a CIC for its own purposes will not attract relief, since a CIC is not to be treated as established for charitable purposes.  However, a donation to a charitable trust of which a CIC is trustee will be eligible for relief.  The charitable status of the trust is unaffected by the status of the trustee.

Section 27 - Regulator; and Schedule 3 - Regulator of Community Interest Companies

197.This section creates the office of the Regulator and makes some general provisions about the Regulator’s functions and the way in which they are to be carried out.

198.The Regulator must be appointed by the Secretary of State (subsection (2)).  Subsection (3) identifies the functions of the Regulator.  One such function is the provision of guidance and assistance.  Subsection (5) allows the Regulator to issue guidance or to provide assistance about any matter relating to CICs that he wishes.  The Secretary of State can also compel the Regulator to provide such guidance or assistance (subsection (6)).  Other functions are conferred or imposed on the Regulator in the Act, or provision is made for further functions to be imposed by regulations, in sections 28(6), 29(2), 30(4) to (8), 36(4) and (6), 38(3) and (5), 41 to 51, 55(3) and (5), 59(5), 61(3) and (5), and 62(3).

199.Subsection (4) imposes a duty on the Regulator to carry out all his statutory functions with regard to three specific factors, or ‘statutory objectives’, relating to good regulatory practice.  This provision complements the common law requirements that apply to all those exercising administrative and regulatory functions, such as the requirement to act reasonably.  It is intended to guide the Regulator towards a particular style of regulation which takes into account the nature of those affected by his actions.  This intention is reflected in subsection (7), which sets out the approach that the Regulator is to take when carrying out his guidance and assistance function.

200.Subsection (8) gives effect to Schedule 3 which contains detailed provisions concerning the Regulator.  Schedule 3 sets out the Regulator's terms of appointment (paragraph 1), and makes provisions about the Regulator’s remuneration, staffing, and financial and reporting framework (paragraphs 2 to 7).  The Regulator's staff will be civil servants. Paragraphs 8 and 9 make the Regulator subject to investigation by the Parliamentary Commissioner, and disqualify the Regulator from membership of the House of Commons.

Section 28 - Appeal Officer; and Schedule 4 - Appeal Officer for Community Interest Companies

201.This section creates the office of Appeal Officer and sets out his functions.  The Appeal Officer is to be appointed by the Secretary of State (subsection (2)), and the terms of appointment are set out in Schedule 4.  These provisions are intended to ensure that the Appeal Officer remains independent of the Regulator.

202.The Appeal Officer's role is to hear appeals against decisions of the Regulator (subsection (3)).  Only those decisions against which a right of appeal is provided in the Act, including regulations made under the Act or in other legislation, may be the subject of an appeal to the Appeal Officer.  Such a right of appeal is provided for in sections 36(10), 38(10), 45(13), 47(14), 48(13) and (14), 49(5) and (6) and 55(8).  It is intended that additional rights of appeal to the Appeal Officer will be included in regulations relating to the distribution of assets on winding-up (section 31) and approvals of changes of objects (section 32(6)).

203.The Appeal Officer will be able to consider appeals on matters of law and of fact (subsection (4)).  The Appeal Officer will be able to dismiss or allow an appeal, or to report his findings on the facts and his rulings on the law to the Regulator, who will then be obliged to review the decision in the light of those findings and rulings (subsections (5) and (6)).  The decisions of the Regulator will, of course, also be subject to judicial review.

204.Subsection (7) gives effect to Schedule 4.  Schedule 4 sets out the Appeal Officer’s terms of appointment, remuneration and financing (paragraphs 1 to 3), and provides for the Secretary of State to make regulations about the procedures to be followed by the Appeal Officer.  Paragraphs 5 and 6 make the Appeal Officer subject to investigation by the Parliamentary Commissioner, and disqualify the Appeal Officer from membership of the House of Commons.

Section 29 - Official Property Holder; and Schedule 5 - Official Property Holder for Community Interest Companies

205.This section creates the office of Official Property Holder, which is to be filled by one of the Regulator’s staff.  Provisions relating to this office are set out in Schedule 5.  The Official Property Holder's functions are as set out in the Act or any other legislation (subsection (3)).  The Official Property Holder’s role is to hold property where the Regulator has made an order under section 48(1) vesting that property in the Official Property Holder, so as to safeguard it for the community interest.

206.Subsection (4) gives effect to Schedule 5.  Schedule 5 sets out the Official Property Holder’s status, his relationship with the Regulator, his financing arrangements and his reporting requirements (paragraphs 1 to 3 and 5 to 6).  Paragraph 4 provides that the Official Property Holder shall hold property as a trustee.  The Official Property Holder will hold the property vested in him on trust for its rightful owner.  The Official Property Holder may release or deal with property that he holds so as to give effect to the rights of third parties in that property, or to comply with the request of various office-holders appointed under insolvency legislation in respect of the community interest company.  Otherwise the Official Property Holder may only release or deal with the property in accordance with the directions of the Regulator.  The general duties and requirements of trust law will apply to the Official Property Holder in his capacity as a trustee of the property vested in him, subject to the provisions of the Act.

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