New rules came into force on 1 August 2018, expanding the circumstances in which a person can be automatically disqualified from acting as a trustee of a charity. These include unspent convictions for bribery, terrorism, money laundering, contempt of court, misconduct in public office, and being on the sex offenders register (see s.178 and s.178A of the Charities Act 2011 (CA 2011)).
What are the implications of the new automatic disqualification rules for charities?
The new rules apply to all charities based in England and Wales regardless of whether or not they are registered with the Charity Commission.
They also apply to both trustees and senior management, ie if a person is automatically disqualified from being a trustee, they will also now be automatically disqualified from holding a position in senior management within the charity.
Senior managers include chief executives and finance directors, although it is important to remember that the title of the post is essentially immaterial, it is the responsibilities and accountability of the role which will determine whether it is a “senior management” post.
If a person is responsible for the management of the charity and reports directly to the trustees, or if they are responsible for the management and control of the charity’s finances, then they are likely to be in a senior management role.
What should charities do?
It is imperative that charities now review the status of both existing and prospective trustees and senior managers, and the charity’s recruitment and post-appointment practices:
- check whether any existing trustees are caught by the automatic disqualification provisions and ask them to sign a new declaration.
- identify all relevant senior management posts (the Charity Commission’s guidance to individuals may be helpful here).
- check whether any existing senior managers are caught by the automatic disqualification provisions and ask them to sign a new declaration.
- ensure that the necessary checks regarding automatic disqualification are in place in relation to the appointment of new trustees and recruitment of prospective senior managers.
- ensure that systems are in place to identify trustees or senior managers who become disqualified after they have been appointed, for instance by:
- introducing an annual practice of requiring all trustees and senior managers to review the Commission’s published table setting out all of the possible reasons for disqualification, and then sign a new declaration;
- making use of official registers, such as the Individual Insolvency Register and Companies House register of disqualified directors.
Within its guidance to individuals and charities, the Charity Commission has included a link to sample declarations which charities may wish to use for trustees and for senior managers.
All signed declarations by trustees and senior managers should be retained by the charity for its records and should not be sent to the Commission.
All new trustees should also complete and return to the Charity Commission its updated declaration form which takes into account the newly expanded list of disqualifying events. Any old declaration forms will not be accepted by the Commission after 1 October 2018.
What happens if an existing trustee or senior manager is automatically disqualified?
If a trustee or senior manager falls within the new rules, they must immediately cease to act in that capacity. A trustee should formally resign his/her position on the trust board and a senior manager should not continue to act in that position.
Continuing to act as a charity trustee or as a senior manager whilst disqualified is a criminal offence (s.183 CA 2011) and could lead to a fine or imprisonment (or both). It is also a serious incident, which trustees are under a duty to report to the Charity Commission (s.169 CA 2011).
If a trustee of senior manager continues to act whilst disqualified, the Commission has the power to order them to repay to the charity any money received (e.g. salary, expenses, benefit in kind) during the time they were disqualified (s.184 CA 2011).
Is there any way a trustee or senior manager can still act or hold office if they are disqualified under the new rules?
A disqualified trustee or senior manager may apply to the Commission for a waiver from disqualification (s.181 CA 2011). The application must come from the disqualified person and not the charity, and may be made at any time after the person becomes disqualified. The trustees of the charity should state whether or not they support the application.
The Commission will decide each case based on what is in the best interests of the charity and the possibility of a waiver damaging public trust and confidence in the charity or charities. If the Commission decides to grant a waiver they may do so generally or in respect of a particular charity or a particular class of charities.
There are certain circumstances in which the Commission is prevented from granting a waiver, including where:
- the charity’s governing document disqualifies certain people from acting as trustees and does not allow the Commission to waive the disqualification;
- the charity is a company or CIO and the person:
- is disqualified as a company director; or
- is an undischarged bankrupt under the Insolvency Act 1986; or
- has failed to pay a county court administration order and has not been granted leave to act as a director, or trustee of a CIO, by the court.
As a last resort, the charity may need to consider other ways in which a disqualified person can be involved with a charity even if they are disqualified, e.g. employment in a position which is not “senior management”, volunteering, or another type of advisory role.
For more information, please contact Caroline Eade, Head of Charities, email@example.com