Under new rule(s) - review of the changes to the automatic disqualification rules for trustees

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In Brief

  • Understanding the changes to the automatic disqualification rules for trustees.
  • What is a relevant senior manager position?
  • What steps should charities take?
  • Effect of automatic disqualification.

The rules regarding automatic disqualification for trustees changed on 1 August 2018. In particular, more reasons to disqualify an individual from acting as a trustee have been added and the new rules also apply to certain senior manager positions within charities. In summary, charities should avoid appointing or retaining trustees or senior managers who are disqualified, unless the Charity Commission has given a waiver. In this regard, it is important to understand these changes and the steps that charities should take to avoid falling foul of the rules.

Understanding the changes

Prior to 1 August 2018, the circumstances in which trustees could be disqualified was fairly narrow. They related mainly to issues around bankruptcy and unspent convictions for crimes involving dishonesty or deception.

The new rules widen the list of circumstances in which individuals are automatically disqualified from acting as charity trustees or senior managers, including being on the sex offenders register, and certain unspent convictions (such as for terrorism or money laundering).

A summary of the disqualifying reasons is set out below and more information can be obtained from the commission's website (www.gov.uk/government/organisations/charity-commission).

An individual will be automatically disqualified if they have an unspent conviction for certain offences, eg a dishonesty or deception offence, particular terrorism and money laundering offences, and bribery offences.

Individuals are also disqualified if they:

  • are subject to notification requirements under sexual offences legislation;
  • are currently declared bankrupt or are subject to bankruptcy restrictions or an interim order, including an individual voluntary arrangement (limited exceptions apply);
  • are subject to a debt relief order under the Insolvency Act 1986, or a debt relief restrictions order, or interim order, under that Act;
  • are disqualified from being a company director (limited exceptions apply);
  • have previously been removed as a trustee, officer, agent or employee of a charity by either the Charity Commission or the High Court due to misconduct or mismanagement;
  • have previously been removed from a position of management or control of a charity in Scotland for mismanagement or misconduct;
  • have been found to be in contempt of court for making a false statement; or
  • are a designated person under particular anti-terrorism legislation.

What is a relevant senior manager position?

For the purposes of these new rules, a senior manager position will be the chief executive (or equivalent) positions and chief finance officer (or equivalent) positions. It is important to understand how the rules define the senior manager positions that are affected because it is the function (and not the title) of the position that matters.

A chief executive (or equivalent) position:

  • carries overall responsibility for the day day-to-day management and control of the charity; and 169 NLJ 7834, p13 at 14
  • is accountable only to the charity trustees.

A chief finance officer (or equivalent) position is restricted if it is:

  • accountable only to the chief executive or the trustees; and
  • responsible for overall management and control of the charity's finances.

What steps should charities take?

Charities should review their recruitment policy and implement a system to ensure that a potential appointee to a trustee or senior manager position is not disqualified under the automatic disqualification rules. This can be achieved by asking a prospective senior manager/trustee to sign a declaration to confirm that they are not disqualified.

In addition, charities should ensure that those trustees and senior managers currently appointed are not automatically disqualified under the new rules. In this regard, check whether the existing declarations meet the requirements of the automatic disqualification rules. If they don't, charities should issue revised declarations and ensure that these are duly completed by all existing trustees and individuals appointed to senior manager positions. Sample declarations can be obtained from the commission's website. It is also sensible to check official registers, such as the Insolvency Register and Companies House (for charitable companies).

Effect of automatic disqualification

If a person is automatically disqualified under the new rules then they cannot continue in their existing position and should resign immediately. It is important for the charity to consider how any resignations will affect the governance of the charity, for example, will the minimum number of trustees required by the charity's constitution to form a quorum still be met? If not, what steps can be taken to address this? For example, the charity may need to amend the constitution (following the correct procedure set out in their governing document and/or the Charities Act 2011) or consider appointing or co-opting additional trustees.

For individuals who are automatically disqualified and are appointed to senior manager positions, specialist employment law advice should be obtained to ensure compliance with employment legislation..

Waivers

In most circumstances a disqualified person can apply to the commission to waive their disqualification at any time after they become disqualified. The commission makes a formal decision about each waiver application, considering each case on its own merits and what is in the best interests of the charity, including whether or not the waiver is likely to damage public trust and confidence in a charity or charities generally. A waiver decision can be appealed.

The board of trustees should give careful consideration to supporting an application for a waiver. Relevant factors to consider will include whether or not the individual is the best person for the role and the risks for the charity.

This article was originally published in New Law Journal

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