Charity Law Disqualification of Trustees & Senior Managers

The final provision of the Charities (Protection and Social Investment) Act 2016 comes into effect on 1 August 2018, automatically disqualifying certain people from serving as charity trustees or in some senior positions in charities in England and Wales – regardless of whether the charity is registered with the Charity Commission. The steps that need to be taken now by all charities, their trustees and senior managers – if they have not already done so – are explained below. I'm really sorry I didn't get this update to you earlier. 

Most other provisions of the Act have been in effect since 2016. These are summarised in update 1820, which will be sent tomorrow.

General resources about the Act

The Charities (Protection and Social Investment) Act 2016, along with very clear and helpful explanatory notes: http://www.legislation.gov.uk/ukpga/2016/4/contents.
"Special focus: Charities (Protection and Social Investment) Act 2016", Bates Wells Braithwaite, summer 2016, 6 pages: Best summary I have found. Attached, with the effective dates added for each provision. 

AUTOMATIC DISQUALIFICATION OF CHARITY TRUSTEES & PEOPLE IN SENIOR POSITIONS

Existing rules: Automatic disqualification of trustees

Since the Charities Act 1992 (now consolidated into the 2011 Act), a person has been automatically disqualified from serving as a trustee of or for a charity in England and Wales if he or she has an unspent (i.e. still "live") conviction involving dishonesty or deception; has been declared bankrupt or made an arrangement with their creditors which has not been discharged; has been removed by the Charity Commission, high court or court of session in Scotland from being a charity trustee; has been disqualified as a company director; or is subject to an order made under the Insolvency Act for failure to make payments under a county court administration order. In most cases, a person in this situation can apply can apply to the Charity Commission for a waiver in relation to a particular charity or type of charity, or in general. 

It is an offence, punishable by a fine and up to two years imprisonment, to serve as a charity trustee while disqualified. Any person who serves as a trustee while disqualified may be required by the Charity Commission to repay to the charity any payments received as remuneration or for expenses while disqualified, or the monetary value of any benefits received while disqualified. For some types of disqualification, trustees of charitable companies are subject to penalties under company law rather than charity law. 

New rules: Automatic disqualification of trustees and people in senior positions

The existing provisions remain in place. But from 1 August 2018, this list of circumstances triggering automatic disqualification is widened. In addition, and very significantly, anyone who would be automatically disqualified from serving as charity trustee is automatically also disqualified from holding an office or employment in the charity with senior management functions, unless the Charity Commission grants a waiver. These changes are in s.9 of the 2016 Act, which amends s.178 of the Charities Act 2011 and inserts a new s.178A. The changes are controversial, and attracted significant opposition from the charity sector during consultations on the legislation and on the Commission's guidance. 

"Senior management positions" are defined as:

the most senior executive position in a charity, with overall responsibility for the day to day management and control of the charity and accountable directly to the trustees; and
where control of the charity's finances has been delegated, the person (other than the most senior executive) with overall responsibility for day to day management and control of the charity's finance; and is accountable only to the chief executive (or similar) or the trustees.

The designation is based on the functions actually carried out by the person, not their title – so someone could be called coordinator, convenor, general secretary, administrator, development worker or anything else and still hold the most senior position. 

The new disqualification rule does not apply to all senior managers – only to the most senior manager or equivalent, and – if it is a different person – the most senior person who controls the finances. The Commission's guidance refers to such positions as restricted. The holder of a restricted position may be an employee, volunteer, consultant or similar. Where a senior management position is job-shared, or In flat hierarchies where there are several people in senior management positions, each directly accountable to the trustees rather than to another staff member, each of those positions would be restricted. 

In addition, if a person has been disqualified as a trustee, and they are involved in controlling or managing a corporate trustee which is itself the trustee of a charity, they will not be able to be involved in decisions about the charity's administration. A corporate trustee is an incorporated body, such as a registered company or a local authority, which serves as a trustee. 

Additional circumstances leading to automatic disqualification from 1 August 2018 are:

  • An unspent conviction for specified offences under counter-terrorism legislation, money laundering legislation or the Bribery Act 2010; offences of misconduct in public office, perjury or perverting the course of justice; or attempting, aiding or abetting these offences;
  • Contempt of court;
  • Being designated under terrorist asset-freezing legislation;
  • Being on the sex offenders register.

Waivers from disqualification

Since 1 February 2018, a current or potential trustee or senior manager who will be caught by the new provisions has been able to apply to the Charity Commission for a waiver from disqualification. Trustees caught by the earlier provisions, from 1992, have always been able to apply. When considering waiver applications the Commission's general view is that the disqualification should apply, but there are some circumstances where it will agree to waive the disqualification if it is in the interests of the charity to do so. 

A trustee or senior manager who will be automatically disqualified under the new rules and applies for a waiver before 1 August will be able to remain in that role until the Commission makes a decision. If they do not apply before 1 August, they will be committing an offence if they continue as a trustee or senior manager. A trustee should resign effective 31 July or earlier; the other trustees should ensure enough trustees remain to form a quorum, and if not, will have to appoint a new trustee or trustees under provisions in the governing document. The trustee can still remain involved with the charity, for example as a volunteer, but must not act directly or indirectly as a trustee. 

If an automatically disqualified senior manager does not apply for a waiver before 1 August and thus will not be able to remain in position from 1 August, the charity and manager must discuss this urgently, and both may need legal advice about the implications. It may be possible for the person to be employed in an alternative role in which they do not have day to day senior management responsibility, or they may need to resign or be dismissed. A dismissal is fair if a statutory duty or restriction prohibits the employment being continued, but despite this the situation is potentially high risk and advice should be taken. 

Action

Charities in England and Wales – whether registered with the Commission or not – which have not already dealt with this issue should:

  • rRad the Charity Commission news release and guidance below;
  • Identify which of your senior managers will or may be caught by the rules (see the Commission's guidance for trustees and senior managers – fourth bullet point under Resources, below);
  • Explain the changes to trustees and relevant senior managers, provide them with the Commission's guidance for trustees and senior managers, and provide the relevant declaration form (in the Commission's guidance for charities, third bullet point below – it would make sense if the declarations were also in the guidance for trustees and senior managers);
  • Check the official individual insolvency register on the Insolvency Service website to see if any trustee or person in a restricted position is bankrupt or has an arrangement with creditors that would disqualify them; the register of disqualified company directors on the Companies House website; and the register of persons removed as a charity trustee on the Charity Commission website to see if the person is disqualified under the existing rules (there are links to these at the end of the Commission's guidance for charities; see third bullet point below);
  • If it becomes apparent that a trustee is disqualified under the existing criteria, discuss with them whether they want to apply to the Commission for a waiver (if they do not apply, or they apply and the waiver is not granted, it will be an offence for them to remain a trustee so they will have to resign);
  • If from 1 August a trustee will be disqualified under the new criteria, or a person in a restricted position will be disqualified under the existing or new criteria, discuss with them whether they want to apply for a waiver (but if this is not done before 1 August, or if they apply before 1 August but the waiver is not granted, it will be an offence for them to remain a trustee or in a restricted position);
  • Put trustee and staff recruitment procedures in place to get declarations from prospective trustees and senior managers in future, in good time for them to apply for a waiver, if necessary, before they are offered or would take up their position;
  • Put procedures in place to ensure trustees and senior managers know the events that could trigger automatic disqualification, and are aware they should let you know if any of them occur;
  • Put the procedures in place to ask trustees and senior managers to sign the declaration at regular intervals … just to be sure;
  • Review employment or consultancy contracts for senior manager positions, and take advice about whether they need to be revised.

Resources

· "Charity automatic disqualification rules: Prepare for changes to the law", Charity Commission news release, 25/6/2018:
https://www.gov.uk/government/news/charity-automatic-disqualification-rules-you-can-now-apply-for-a-waiver.

Brief summary of key actions for charities, trustees and senior managers.
· "Automatic disqualification rule change", Stone King solicitors, 14/3/18: https://www.stoneking.co.uk/literature/other-articles/automatic-disqualification-rule-change.
A useful 3-page overview.
· "Automatic disqualification rule changes: guidance for charities", Charity Commission guidance, updated 15/5/18 (most recent as of 26/6/18):
https://www.gov.uk/guidance/automatic-disqualification-rule-changes-guidance-for-charities.

Explains the changes and how to prepare for them. Includes, in the "The current automatic disqualification rules" section, a very useful 4-page PDF with details of the current and forthcoming criteria; and in the "Preparing for the rule changes" section, links to sample declarations for current or potential trustees and senior managers. These declarations are to be used in addition to, not instead of, the existing basic trustee declaration of eligibility.

"Automatic disqualification rules for charity trustees and charity senior positions", Charity Commission guidance, updated 15/5/18:
https://www.gov.uk/guidance/automatic-disqualification-rules-for-charity-trustees-and-charity-senior-positions.

Guidance for individuals about the rules, clarifying what is a senior management position, what to do if you become disqualified and how to apply for a waiver. Includes, in the "How to apply for a waiver" section, a link to apply for a waiver.

"Our guidance for charities: Leading charities with conviction" and "Our guidance for individuals: Leading charities with conviction", wonderfully titled guidance from Unlock, a charity supporting people with criminal records, about the new rules:

http://www.unlock.org.uk/projects/changes-charity-rules/.

"How the Charity Commission assesses waiver applications and makes a decision", Charity Commission, 16/1/18:
https://www.gov.uk/government/publications/how-the-charity-commission-assesses-waiver-applications-and-makes-a-decision.

DISCRETIONARY DISQUALIFICATION

Since 1 October 2016, the Charity Commission has had a new power under s.10 of the 2016 Act (which inserts ss.181A-D into the Charities Act 2011) to disqualify a person from serving as a charity trustee for up to 15 years. To make a disqualification order the Commission must be satisfied that the person is unfit to be a charity trustee and that making the order is desirable in the public interest to protect public trust and confidence in charities, and one or more of the following conditions must be met:

  • the person has been cautioned for an offence against a charity or in the administration of a charity for which a conviction would bring automatic disqualification;
  • the person has been convicted of an offence in a country outside the UK that is against, or involves the administration of, a charity, and if it had been committed in the UK, would have been an offence which brought automatic disqualification from being a trustee;
  • the person has been found by HM Revenue & Customs not to be a "fit and proper person" to be a manager of a body or trust;
  • a trustee, officer, agent or employee of a charity was responsible for, contributed to or facilitated misconduct or mismanagement in a charity or the person knew of the misconduct or mismanagement and failed to take any reasonable step to oppose it;
  • as above, but involving an officer or employee of a corporate trustee;
  • past or continuing conduct, whether or not in relation to a charity, that is or is likely to be damaging to public trust and confidence in a charity or charities.

A person disqualified from serving as a trustee under this power will also generally be disqualified from serving in a senior management position in the charity or charities specified in the order. 

Resources

"Explanatory statement: The discretionary disqualification power" and "Questions and answers: The discretionary disqualification power", Charity Commission, both December 2016: https://www.gov.uk/government/publications/the-discretionary-disqualification-power.

"The Charity Commission's new regulatory powers two years on", Bates Wells Braithwaite, p.20 in Charities and social enterprise update, summer 2018:
https://www.bwbllp.com/knowledge/publications/2018/05/15/charity-and-social-enterprise-update-summer/.

Summaries of two cases where the Commission disqualified trustees (Anatolia People's Cultural Centre and Deen Team) and one where it disqualified a CEO (Peacetrail). The Commission has also disqualified a company, Mountstar PTC, from serving as a trustee. For further details, Google <Charity Commission> plus the name of the organisation. 

POWER TO REMOVE TRUSTEES

From 31 July 2016 the Commission has had a new power under s.4 of the 2016 Act (which inserts a substitute s.79 into the Charities Act 2011) to remove charity trustees or other office holders following a statutory inquiry. 

It has also had a new power under s.5 of the 2016 Act (which inserts a new s.79A into the 2011 Act) to remove a disqualified charity trustee if they remain in their position after becoming disqualified. This power does not allow the Commission to remove a disqualified position from a senior management position, but if the person did not resign and the trustees failed to remove them, the Commission could take action against the trustees. 

KIDS COMPANY DISQUALIFICATION AS COMPANY DIRECTORS

While we're on the topic of disqualification: on 18 May 2018 the Insolvency Service disqualified Sunetra Atkinson, a former director of Kids Company, from running a company for two and a half years. Because Kids Company was a charitable company, such disqualification is made by the Insolvency Service under the Company Directors Disqualification Act 1986 rather than by the Charity Commission under the Charities Act. Disqualification as a company director automatically disqualifies the person from serving as trustee of any charity and, from 1 August 2018, serving in a charity senior management position, unless the court grants leave for the person to do so.

At the time of Atkinson's disqualification, a spokesman for the Insolvency Service is reported to have said, "It remains our intention to continue disqualification proceedings against the other eight directors." These are chief executive Camila Batmanghelidjh and seven former director/trustees, including former BBC creative director Alan Yentob.

source sandyadirondack1819 27.06.18