Commentary on Sections Becoming a community interest company Section 40 - Existing companies: Scottish charities
236.Subsection (1) prevents a Scottish charity, or a company which is not a Scottish charity as defined insection 63 but that is registered in Scotland and established for wholly charitable purposes, from becoming a community interest company.  If, despite this prohibition, such a company attempts to become a CIC and changes its name to comply with section  33, the altered certificate of incorporation issued on the change of name may be quashed by order of the Court of Session (subsection (2)).  The right of the Commissioners of Inland Revenue to apply for such an order is, of course, without prejudice to the power of the Attorney General to apply to court to quash a registration (by a company registered in England and Wales, or in Wales) which has been improperly or erroneously allowed.
237.Charity law is a devolved matter in Scotland. Scottish charities are prohibited from altering their purposes, as set out in their constitution, in any way which would result in the loss of their charitable status.  Since CICs are excluded from charitable status (section 26(3)), Scottish charities should not be able to lose their charitable status by converting to a CIC.  A consultation draft of a Charities and Trustee Investment (Scotland) Bill was published on 2 June 2004.  Clause 15 of that draft Bill contains provisions making it possible for Scottish charities to lose their Scottish charitable status.  Those provisions, if enacted, will make it appropriate to use the mechanism in subsection (3) whereby the prohibition on Scottish charities converting to CICs may be lifted, via regulations.  The conversion process that would then apply contains similar safeguards to the conversion mechanism in section 39.