Disqualified trustees. A thematic report from the Charity Commission for Northern Ireland

Transcription

1 Disqualified trustees A thematic report from the Charity Commission for Northern Ireland February 2016

2 The Charity Commission for Northern Ireland is the regulator of charities in Northern Ireland, a non-departmental public body sponsored by the Department for Social Development. Our vision To deliver in partnership with other key stakeholders in the charitable sector a dynamic and well governed charities sector in which the public has confidence, underpinned by the Commission s effective delivery of its regulatory role. Further information about our aims and activities is available on our website Equality The Charity Commission for Northern Ireland is committed to equality and diversity in all that we do. Accessibility If you have any accessibility requirements please contact us. 1

3 Contents Section 1: Introduction Foreword Section 2: Charity trustee disqualification What is a charity trustee? 2.2 When will an individual be disqualified from being a trustee? 2.3 Exceptions to the disqualification criteria Section 3: Trustee checks Trustee checks the Commission undertakes 3.2 Trustee checks charities should undertake Section 4: What will the Commission do if a disqualified trustee remains in post? Regulatory action Contact us 14 2

4 Section 1: Introduction 1.0 Foreword Being a charity trustee is an important role, one which can bring numerous rewards and opportunities. However, anyone considering undertaking a trusteeship should ensure they fully consider what will be involved and have a clear understanding of their responsibilities. The Commission s Running your Charity guidance provides an overview on the key areas of running a charity. One important aspect of the advice offered is that charity trustees must act in the best interests of the charity, only within the purposes of the charity and ensure the charity complies with all aspects of the law, as it applies to them. This, of course, includes ensuring that all trustees are legally permitted to hold the position of trustee. While many people have the skills, knowledge and commitment to be a trustee, some people are disqualified from holding the post. For example, someone who has previously been removed as a charity trustee by the Commission or the Courts, is an undischarged bankrupt or has made an arrangement with creditors would be disqualified from acting as a trustee, unless they had received a waiver from the Commission. As compulsory charity registration has progressed, we have found some trustees are unaware of current legislation around trustee disqualification. This has particularly been the case where an individual is subject to an insolvency order, such as a Debt Relief Order (DRO), and has continued to act as a charity trustee unaware they are disqualified under the law. We hope this report will help to clarify the situation around disqualification, supporting charities in understanding trustee checks the Commission undertakes as well guiding their own checks. Charities rely on the assistance of their supporters; ensuring compliance with the law and following good governance is the first step to repaying that trust. Myles McKeown Myles McKeown Head of Compliance and Enquiries 3

5 Section 2: Charity trustee disqualification 2.0 What is a charity trustee? Charity trustees are the people who are legally responsible for the control, management and administration of a charity. They may sometimes be referred to by another name, for example, they may be known as directors, board members, governors, committee members, a council of management or charity trustees. However, regardless of the title used, being a trustee is a responsible role and not one which should be undertaken lightly. Charity trustees are the people who lead the charity and decide how it is run. In some cases, particularly with smaller charities, trustees may undertake all the work required to run the charity. In larger charities, trustees often delegate the day-to-day operations to the staff and senior management but will still retain overall responsibility. The trustees must ensure the charity is doing what it was set up to do and is operating within its charitable purposes for the public benefit While being a charity trustee can be an interesting and rewarding role, trustees should be aware of the significant level of responsibility involved. Charity trustees are collectively responsible for all the activities of their charity; they must ensure they act with due care and diligence and in the best interests of the charity. To do this, it is important that trustees ensure they are familiar with the charity s governing document and ensure both they and the charity comply with the requirements of all relevant legislation, including the Charities Act (Northern Ireland) 2008 ( the Charities Act ). The Commission s Running your charity guidance provides support and advice for trustees on key aspects of running a charity effectively. 4

6 2.1 When will an individual be disqualified from being a trustee? When considering becoming a trustee, or when recruiting new trustees for your charity, you should be aware that some people are disqualified by law from acting as charity trustees. Under section 86 of the Charities Act, an individual is disqualified from being a charity trustee if: they have a conviction for any offence involving dishonesty or deception and this is not a spent conviction they are subject to insolvency orders such as a bankruptcy restrictions order or order of sequestration, a debt relief order or a debt relief restrictions order they have entered into an agreement with creditors, for example an individual voluntary arrangement (IVA), and this has not been discharged they have been removed as a charity trustee by the Commission, the Charity Commission for England and Wales (CCEW), the Office of the Scottish Charity Regulator (OSCR), or the Courts, on the grounds of misconduct or mismanagement they are disqualified from being a company director under the Company Directors Disqualification (NI) Order 2002 or the Company Directors Disqualification Act If an individual meets any of the above criteria, they are automatically disqualified from being the trustee of a charity. A charity s governing document may also set out who is disqualified from acting as a trustee for that charity. Charity trustees should sign a declaration before their election or appointment to confirm that they are not disqualified. It is an offence to act as a charity trustee while disqualified. An individual who meets the criteria for disqualification must not take up a position as 5

7 trustee of a charity. Similarly, if an existing charity trustee becomes disqualified, they must step down from their position. However, it is important to note that some of these criteria have time limits attached to them. For example, bankruptcy normally lasts for one year, after which time the individual is discharged. Once discharged, the individual will no longer be disqualified from being a charity trustee. It is the responsibility of the individual concerned to ensure they are discharged and their declaration, both to the charity and the Commission, on appointment will be viewed as a commitment to the fact that they are no longer disqualified. If an individual unlawfully acts as a charity trustee whilst disqualified, they may be liable to imprisonment, a fine or both. Case study: Unspent conviction involving dishonesty or deception A trustee of a registered charity had an unspent conviction involving dishonesty or deception. The individual had been generally open about their past, particularly through charitable activities aimed at dissuading young people from making similar mistakes. Unfortunately, the trustee had not been open with the Commission in the trustee declaration, which must be completed and submitted as part of the charity registration application. The trustee stood down after he was notified by the Commission that he was disqualified, which included advice on the right to apply for a waiver from disqualification, if he wished to continue the work with this specific charity as a trustee, and of the fact that he could still volunteer for the charity. 6

8 Lessons for other charities Charity trustees should ensure that the declarations made to the Commission are accurate. Each charity trustee is individually responsible for ensuring that information provided to the Commission is compliant with our legislation. Whilst this is example was not a case of mismanagement or misconduct, the Commission would remind trustees that they can be guilty of mismanagement or misconduct by being privy to the provision of misleading or false information to the Commission. Equally each charity should ensure that all trustees on their board are eligible to be a trustee. 2.3 Exceptions to the disqualification criteria If an individual meets any of the above criteria, they are automatically disqualified from being the trustee of a charity. There are, however, a number of exceptions to this, as outlined below. Where an individual is disqualified by reason of an insolvency order or insolvency arrangement and from which they have not been discharged, they are permitted to act as director of a charitable company, provided leave is granted by the High Court under Article 15 of the Company Directors Disqualification (Northern Ireland) Order 2002 or section 11 of the Company Directors Disqualification Act 1986 to act as director of a charitable company. Where an individual is subject to a disqualification order or disqualification undertaking under either the Company Directors Disqualification (NI) Order 2002 or the Company Directors Disqualification Act 1986, they are permitted to act as director of a charitable company, provided leave has been granted by the High Court under company director disqualification law for them to do so. Where the Commission has waived an individual s disqualification. The Commission s Waiving disqualification guidance provides guidance on the process of applying for a waiver of a disqualification from acting as a charity trustee. 7

9 Case study: Waiver applications One application for waiver from a disqualified trustee received by the Commission was subsequently withdrawn. This was after the individual learned from the Commission that their disqualification did not bar them from continuing to volunteer for the charity, thereby continuing to be involved in and support the organisation. Lessons for other charities If, as a charity trustee, you wish to avail of a volunteer s expertise by bringing that volunteer onto the board, you must ensure they are eligible to be a trustee. If they are not eligible, then you can still benefit from their expertise as long as they are not a trustee and do not have a decision making role within the charity. 8

10 Section 3: Trustee checks 3.0 Trustee checks undertaken by the Commission There are a number of occasions when the Commission might carry out checks to ensure that the trustees of a charity are not disqualified under the law from holding the position. The most common of these checks are undertaken during the charity registration assessment process, or as part of the Commission s monitoring and compliance programme. Applying for registration When applying for registration, details for all the organisation s charity trustees must be provided. This includes each trustee s: current and previous name, for example a woman may use her married name in social situations and retain her maiden name in a professional capacity title date of birth address and postcode telephone number All trustees listed on the application must also sign and date (the date of the signature) the trustee declaration. Declaration Boxes A and B on the declaration must also be ticked if the organisation works with children and/or vulnerable people, with all pages of the declaration attached at the end of the registration application. Only the name of each charity trustee will be shown on the public register of charities. However, providing further information on each trustee, along with the completed trustee declaration, allows the Commission to regulate effectively by undertaking appropriate trustees checks at the registration application stage. For example, trustees of unincorporated charitable organisations must be 18 years or over. Directors of companies can be 16 years or over under company law and therefore can be trustees of charitable companies. 9

11 Checking each trustee s date of birth allows the Commission to ensure all trustees are the required age. If the governing document of the organisation sets a minimum number of trustees the Commission will expect to see at least that number listed on the registration Registration risk assessment and trustee checks All registration applications received by the Commission undergo an initial risk assessment during which they are designated as high, medium or low risk. This assessment process, which continues throughout the application process, allows the Commission to adopt an appropriate, risk based approach to the evaluation of applications. For example, if an organisation which has applied for registration is also the subject of a Commission investigation or has a particularly high public profile, it may be designated as high risk. The Commission will undertake trustee checks on all applications which are designated as high risk, as well as on a random selection, equating to around five per cent, of remaining applications submitted. These checks are aimed at ensuring the trustees, as detailed on the registration application, are not disqualified from acting as a trustee under the law, namely that each individual is not listed as being: an adjudicated bankrupt subject to a bankruptcy restrictions order entered into a composition or arrangement with creditors and not discharged, which includes for Individual Voluntary Arrangements (IVAs) subject to a moratorium period under a debt relief order subject to a debt relief restrictions order subject to a disqualification order or a disqualification undertaking under companies legislation. The Commission will also check to ensure the individuals have not been removed as a trustee by the Commission itself by checking the register of 10

12 removed trustees. This is a public register and is available in the Start up a charity section of the Commission s website In addition, the Commission will check to ensure the individual has not been removed by the Charity Commission for England and Wales (CCEW) or the Courts on the grounds of misconduct or mismanagement. For corporate trustees only, the Commission will also check to ascertain if the company is in liquidation or in a company voluntary arrangement criteria which would disqualify the corporate trustee from holding the position. It is an offence to knowingly or recklessly provide false or misleading information to the Commission, which includes providing a false trustee name when applying for charity registration 3.2 Trustee checks undertaken by charities The appointment of a new trustee to a charity is an important decision and one which should not be taken lightly, either by the board or the individual assuming the trustee post. Before appointing a new trustee the board must ensure it is acting within the law, in accordance with the charity s governing document and that the prospective trustee is not disqualified from acting as a trustee. The Commission recommends that all charities have a vetting procedure in place to check that new and existing trustees are eligible to act as trustees. The first step in this process would be to ensure the appointment is in accordance with any stipulation on appointing new trustees, or the arrangement of the board itself, within the charity s governing document. For example, the governing document may set a minimum or maximum number of trustees a charity can have. Some governing documents may also require a proportion of the board to be representative of the charity s beneficiary group. For example a charity set up to support young people 11

13 under the age of 21 may be required to have a representative 50% group on the board of trustees. It is also good practice for the board to ask new trustees to sign a declaration before their election or appointment to confirm that they are not disqualified from acting as a trustee. Should the Commission discover that a trustee in a charity is disqualified, we may review the circumstances of their appointment and include this with a general assessment of governance of the charity. Most matters which lead to the disqualification of an individual are discoverable through open source checks and if the charity has not even sought a declaration from a disqualified individual, this will not inspire confidence in the sector. Official registers When vetting new trustees, charities may also consider making use of a number of official registers which record the names of people who are disqualified from acting as charity trustees. For example, trustees can check the Commission s public register of removed trustees, which is available in the Start up a charity section of The Charity Commission for England and Wales (CCEW) also holds a register of removed trustees, which is available online at: eredcharitynumber=&currentlanguage=english&subsidiarynumber=&=d octype& Each register includes the name of individuals removed as a trustee by that regulator as well as the date when the order was made and the name of the charity concerned. It does not provide details of those who are disqualified for other reasons, for example criminal convictions or insolvency. The details will remain on the register unless the regulator in question has entirely lifted the disqualification. This means the names will remain on the register even if a disqualification is partially lifted, for example, allowing the individual to be a trustee under certain conditions. 12

14 Having checked the register of removed trustees, charities may also undertake the following online checks to ensure the individual is not disqualified from acting as a charity trustee: Northern Ireland s public Individual Voluntary Arrangement Register, which is available online at: The register of disqualified directors maintained by Companies House, available on the Companies House website, AccessNI checks Charity trustees have a legal duty to act prudently and take all reasonable steps within their power to ensure those benefiting from, or working with, the charity are not harmed in any way through contact with it. This is particularly important where beneficiaries are vulnerable, perhaps because of their age, health or physical or mental abilities. Trustees of charities working with children and vulnerable groups are expected to familiarise themselves with the relevant safeguarding legislation and/or regulation, to determine how it applies to their organisation and what their child protection policies and processes should include. As part of the safeguarding process, the Commission recommends that AccessNI checks should be obtained for trustees of charities which work with children or vulnerable adults. Charities should also ensure that a prospective trustee understands the responsibilities they are taking on and can reasonably be relied on to carry them out responsibly. 13

15 Case study Trustee with unspent criminal conviction detected A trustee of a registered charity was detected by the Commission to have a criminal conviction for an offence involving dishonesty and deception. The Commission contacted the individual, who accepted that the conviction was correctly identified but had not realised that it rendered them disqualified. The board of trustees were also aware of the conviction of their colleague, but also did not realise the consequences of the conviction regarding disqualification. The trustee resigned and at a subsequent Annual General Meeting (AGM) organised by the charity, a new board of trustees was elected from the members. In this instance, following the Commission s regulatory guidance and the decision making of members at an AGM, a complete change of trustees was realised. The acceptance by trustees and members that the charity s activities and reputation should be safeguarded by a change at board level demonstrated a commitment to acting in the best interests of the charity Lessons for other charities: All charity trustees should ensure that they are aware of and understand the legislation and perhaps most importantly, that they, and all other members of their board, comply with those requirements. Ignorance of the law, or not being aware of the legislative requirements, will not be accepted as an excuse. 14

16 Section 4: What will the Commission do if a disqualified trustee remains in post? 4.1 Regulatory action One of the most common reasons we have found for disqualification is that the individual has entered into an arrangement with creditors, such as a Debt Relief Order (DRO) or an Individual Voluntary Agreement (IVA) which has not been discharged. In fact, of disqualified trustees identified by the Commission by mid November 2015, 89% had an un-discharged IVA. Where the Commission becomes aware that a trustee is disqualified but remains in post, our first step would usually be to contact the disqualified person to alert them to the issue. The Commission s regulatory guidance indicates how seriously we take the issue of an individual acting as a trustee while disqualified and/or of an individual making a false declaration that they are qualified to act as a trustee. Any disqualified trustee would be asked to resign as a trustee from all charities to which they are appointed and immediately cease involvement in any associated decision making. A copy of the individual s resignation letter to the board of all charities to which they are appointed must be sent to the Commission within ten working days of the date of the Commission s notification letter It is often the case that the individual in question simply did not realise they were disqualified. The Commission s regulatory guidance letter alerting them to the law around trustee disqualification, and requesting their immediate resignation from the board, is usually enough to ensure the matter can be resolved quickly and discreetly. As well as alerting the individual, the Commission may also issue a letter to the Chair of the charity. This letter would raise the issue of disqualification but would not name the individual at this stage. The letter may also inform the Chair that a trustee has been given a deadline by the Commission to submit a letter of resignation to the charity and a copy of that resignation must be provided to the Commission. 15

17 On receipt of a resignation the Chair may be asked to provide minutes of the meeting where the resignation was accepted and, if necessary, confirmation that appointment of a new trustee has been undertaken. Should the Commission not receive confirmation from the individual or the charity by the specified deadline, a second letter may be sent to the Chair. This will emphasise the legal obligations on the trustees to manage the charity properly and in accordance with the law. At this stage the Commission is likely to identify the disqualified trustee by name. The Commission is the regulator of charities in Northern Ireland, invested with a range of legal powers to allow it to effectively regulate the charitable sector. Should the board of trustees of a charity fail to comply with the regulatory guidance issued in relation to a disqualified trustee, the Commission will take further steps to resolve the matter. Ultimately, if the individual or trustees of a charity fail to comply with the Commission s guidance, this could be considered by the Commission not only as misconduct by the disqualified trustee, but mismanagement by the collective board. In relation to the individual, acting while disqualified may be pursued through the High Court and the collective mismanagement could provide reason for the escalation of perceived risk to charity property and the institution of a statutory inquiry. Charities should satisfy themselves that they are compliant with the Charities Act and with their governing document regarding disqualification of trustees. 16

18 Case study four Individual Voluntary Agreement (IVA) As in many examples, a routine insolvency check during the registration application assessment process revealed a live IVA against the name of a trustee. Following the agreed process, the Commission contacted the trustee by letter. This included regulatory guidance to highlight that the disqualification had been identified and requesting that the individual step down from the role with immediate effect. The trustee subsequently contacted the Commission to explain that he did not understand that his agreement with creditors disqualified him from acting as a trustee for the charity. However, as the issue had now been highlighted and, as he was disqualified from the role under the law, he agreed to step down from his role within the charity. The charity later confirmed his resignation and amended the list of trustees for the charity s entry on the public register of charities. Lessons for other charities: It is the responsibility of trustees to ensure that their charity s entry on the register of charities is up-to-date. It is not only a legislative requirement for trustees to ensure their register entry is up-to-date, but it is also of wider benefit to the charity. The register, including the names of trustees, is open to the public and can therefore be seen by all the charity s supporters, including funders. 17

19 Case study five: Debt Relief Order In one case, a registration applicant informed the Commission that one of the trustees had a Debt Relief Order. In accordance with the law, this trustee was automatically disqualified from acting as a charity trustee from the point at which she had entered into the agreement with her creditors. The organisation highlighted in its correspondence with the Commission the key role the trustee held within the organisation and asked the Commission to use its discretion to overlook the disqualification in this case. The Commission cannot knowingly add a disqualified trustee to the register of charities and is therefore unable to simply use its discretion in this manner. In this case, the registration application was paused until the disqualified trustee stood down and confirmation was obtained from the remaining charity trustees that the resignation had taken place. However, there is provision in the law for an individual who is disqualified to apply for a waiver of disqualification, which can be granted at the discretion of the Commission. This may enable that individual to take up a position as trustee at a charity. The disqualified trustee was made aware of the trustee disqualification waiver procedure whereby she could make a formal request for the Commission to waive the disqualification. Lessons for other charities: In this case the applicant did not apply for a waiver and therefore the case was closed. The Commission cannot proceed with an application that is not received by the disqualified person, therefore the charity s wish for a waiver to be granted could not be progressed. 18

20 Charity Commission for Northern Ireland 257 Lough Road Lurgan Craigavon BT66 6NQ Tel: Fax: TextPhone: Follow us on This document is available in large print or other formats on request 19