SC033287 The Rangers Charity Foundation Report under section 33 of The Charities and Trustee Investment (Scotland) Act 2005 SC033287 The Rangers Charity Foundation _01
1. Executive summary OSCR has concluded its inquiry into the actions of Rangers Charity Foundation ( the Charity ) in agreeing to forego most of its share of the proceeds of a fundraising event in favour of The Rangers Football Club plc (in Administration). OSCR found that the Charity s decision-making process which allowed important decisions to be made by one trustee acting alone was in breach of trustees duties and constituted misconduct on the part of the charity trustees as a whole. OSCR also found that the way the decision regarding the fundraising event was taken did not comply with the requirements of the Charity s Trust Deed. OSCR identified that issues of conflict of interest inherent in the Charity s structure had not been appropriately dealt with. OSCR found that although the decision was a breach of legal duties, it was made in good faith and in the interests of the charity given the risk that otherwise the fundraising event might not have taken place. Having looked carefully at the whole situation, OSCR has not found that the ongoing risks to charitable assets or to the reputation of the sector justify OSCR taking action against any of the trustees. The inquiry has taken some time to complete, partly due to the difficulty of obtaining information from some of the parties involved in a complex and fluid situation. This inquiry identified a number of learning points relevant to the wider charitable sector. SC033287 The Rangers Charity Foundation _02
2. OSCR s regulatory interest OSCR s regulatory functions under the Charities and Trustee Investment (Scotland) Act 2005 ( the 2005 Act ) include encouraging, facilitating and monitoring compliance by charities and identifying and investigating apparent misconduct in the administration of charities. Misconduct in the administration of a charity is defined as a breach of the charity trustee duties set out in section 66 of the 2005 Act. Charity trustees are defined in the 2005 Act as the people having the general control and management of the charity. They have a duty under section 66 of the 2005 Act to act in the interests of their charity with the care and diligence it is reasonable to expect of a person who is managing the affairs of another person and to ensure that their charity acts in a manner consistent with its purposes. OSCR opened an inquiry into the Charity in late February 2012 after becoming aware of intense media interest and receiving complaints about statements on the websites of the Charity and The Rangers Football Club plc. The Charity had entered into an Agreement with AC Milan Glorie, dated 16 January 2012, to organise and host a charity dinner and friendly football match between Rangers Legends and AC Milan Glorie to be held on 29 and 30 March 2012 ( the fundraising event ). The statements on the websites indicated that the Charity intended to forego most of its share of the funds to be raised at the event in favour of The Rangers Football Club plc, which had entered administration on 14 February 2012. The purpose of our inquiry was to determine whether the charity trustees had acted in breach of their section 66 duties when they agreed to reduce the Charity s share of the proceeds from the fundraising event in favour of The Rangers Football Club plc. We are publishing this report of the outcome of our inquiry to highlight learning points for the wider charitable sector and in response to the media interest in the matter and the complaints we received. SC033287 The Rangers Charity Foundation _03
3. The Charity The Charity was created by a Trust Deed executed by The Rangers Football Club plc dated 24 July 2002 and awarded charitable status with effect from that date. The Trust Deed gave The Rangers Football Club plc sole power to appoint new trustees. The Trust Deed also provided that the Chair of The Rangers Football Club plc is ex officio Chair of the Charity. This meant that the Chair of the Charity held that position by virtue of being Chair of The Rangers Football Club plc. On 6 May 2011 The Rangers Football Club plc changed ownership and, as provided in the Trust Deed, the new Chair became ex officio Chair of the Charity. At the time we opened our inquiry the Charity had three charity trustees. Trustee A was the Chair of the Charity. Trustees B and C were senior employees of The Rangers Football Club plc. Trustee B had been inactive as a charity trustee for some time and resigned on 4 April 2012. Trustee C left the employment of The Rangers Football Club plc on 31 January 2013 but remains a charity trustee. Trustee A was removed as a director of The Rangers Football Club plc with effect from 1 June 2012. This ended Trustee A s connection with the Charity. When it became clear in June 2012 that The Rangers Football Club plc was insolvent, the Charity took legal advice and executed a Supplementary Deed in July 2012 irrevocably revoking the right of The Rangers Football Club plc to appoint trustees to the Charity and reinstating the trustees power to appoint new trustees. The Rangers Football Club plc was renamed RFC 2012 plc and entered liquidation on 31 October 2012. Since there will not be another Chair of RFC 2012 plc, the charity trustees themselves will in future decide which charity trustee will be Chair. SC033287 The Rangers Charity Foundation _04
4. Findings The fundraising event We wrote to the Charity on 1 March 2012 requesting information and documentation relating to the Charity and the fundraising event. On 9 March 2012 we met with Trustee C who described events around the time that the Club entered administration on 14 February 2012 as very fluid and fast moving. The AC Milan Legends fundraising event was due to be held on 29 and 30 March 2012. Beneficiaries of funds raised by the fundraising event were to be the Charity and the AC Milan Foundation. As soon as The Rangers Football Club plc entered administration, Trustee C alerted the Joint Administrators to its undertaking to provide full support for the fundraising event in terms of resources, including the venue to host the friendly football match and staff to support it. It was clear to Trustee C that, since the primary duty of the Joint Administrators was to ensure the creditors of The Rangers Football Club plc (In Administration) were not prejudiced, use of its resources for the fundraising event would need to be justified on a cost benefit basis. Trustee C considered there was a very real risk that the Joint Administrators would not permit The Rangers Football Club plc s resources to be used for the fundraising event. If that happened, the fundraising event would not take place and neither the Charity nor the AC Milan Foundation would benefit. In Trustee C s view unless the Joint Administrators had control of the income from the fundraising event they were unlikely to agree to the event going ahead. Assigning the Charity s interest in the Agreement with AC Milan Glorie ( the Agreement ), dated 16 January 2012, for the fundraising event to The Rangers Football Club plc (in Administration) would ensure the Joint Administrators would recover costs and satisfy their duty to creditors to derive income from it. Trustee C considered that assigning the Charity s interest in the Agreement to The Rangers Football Club plc (in Administration) fulfilled the legal duties of a charity trustee because the event would still be able to take place and, in terms of the agreement reached with the Administrators, the Charity would still receive some benefit. Trustee C did not obtain professional advice before making this decision. The date of the decision to assign the event was, unfortunately, not formally recorded but was made on or about 21 February 2012. Under the terms of the Agreement the Charity had been due to receive up to 60% of the net profit from the fundraising event in addition to a 25,000 management fee. Mindful that if the fundraising event did not proceed the Charity would receive nothing, and that it had already incurred costs in relation to organising the event, Trustee C agreed to assign the Charity s interest in the Agreement to The Rangers Football Club plc (in Administration) on the agreement with the Administrators that the Charity would receive 10% of the net profits together with the management fee. The only alternative to this assignation that Trustee C considered was cancellation. The option of the Charity paying a fee to The Rangers Football Club plc (in Administration) for the use of Ibrox Stadium and facilities was not explored, even though this may have resulted in less of a reduction in income to the Charity. However, a fee would have left the Charity in control of event income and this, in Trustee C s view, meant there would be uncertainty over the event taking place. SC033287 The Rangers Charity Foundation _05
Tickets for the football match were not made available for sale until after the assignation to The Rangers Football Club plc (in Administration). Tickets for the dinner had already gone on sale but all purchasers were contacted to explain the change in circumstances and offered a refund. After the assignation of the Charity s interest in the Agreement to The Rangers Football Club plc (in Administration) Trustee B subsequently advised OSCR that Trustee C had afforded the utmost scrutiny and diligence to the Charity s affairs and that Trustee C had acted on behalf of Trustee B throughout the process. We wrote to Trustee A concerning the assignation but did not receive a reply. The event went ahead as scheduled. In addition to the management fee of 25,000, the Charity received 38,286 as its 10% share of the net profit from the fundraising event. The legal duties of charity trustees The individual duty Section 66 of the 2005 Act places a duty on charity trustees to act in the interests of the charity. When a potential conflict of interest arises, charity trustees must put the interests of the charity first. A charity trustee who is unable to do this should declare the conflict and take no further part in the deliberations and decision-making process about the matter. Each of the three charity trustees had a relationship with The Rangers Football Club plc either as an employee or a director of the company. This meant that any decision involving The Rangers Football Club plc and the Charity presented the potential for a conflict of interest. When The Rangers Football Club plc entered administration and the fundraising event was put at risk, the potential for a conflict of interest became real and irreconcilable because of the conflict between the charity trustees duty to act in the interests of the Charity and either their duties as an employee or as a director of The Rangers Football Club plc. If they had acted in the interests of one, they would have failed in their duty to the other. They could not act in the interests of both. Charity law also provides for a very specific conflict of interest that may arise between the interests of the charity and those of the person or organisation responsible for appointing the charity trustee. Should such a conflict arise, the law makes clear the charity trustee s duty is to act in the interests of the charity. A charity trustee who is unable to put the interests of the charity before those of the person or organisation responsible for appointing them is required to disclose the conflict of interest and refrain from participating in any deliberation or decision with respect to the matter in question. The collective duty The 2005 Act makes clear that the duty to act in the interests of the charity and avoid conflicts of interest is not only a duty on individual charity trustees; it is also the duty of their fellow charity trustees to ensure that they do so. The relationship between the Charity and The Rangers Football Club plc When we met with Trustee C, the relationship between the Charity and The Rangers Football Club plc was explained to us as a symbiotic one. The Charity was effectively seen as a department within The Rangers Football Club plc although we were assured there was an awareness that the Charity worked to different rules. The Rangers Football Club plc provided office space and other support for the Charity. The extent of the conflict of interest presented by the Charity s close relationship with The Rangers Football Club plc is indicated by the following statements that appeared on the Charity s website in late February 2012: SC033287 The Rangers Charity Foundation _06
The Club and the Rangers fans have been tremendous to the Foundation over the last ten years and now it is our turn to stand alongside them and Step Up for Rangers. The Rangers Charity Foundation suggested the Club should now benefit from the match and we were delighted that the AC Milan Foundation agreed. It appears to OSCR that none of the trustee duties relating to conflicts of interest has been recognised or managed appropriately by the charity trustees. Decision making and the Charity s Trust Deed We were told that since the change in The Rangers Football Club plc s ownership in May 2011 no charity trustee meetings had been held, and since then Trustee C had been the only trustee actively involved with the Charity. Trustee C met with the manager of the Charity on a weekly basis to ensure that at least one trustee was fully aware at all times of the current state of affairs of the Charity. Trustee C highlighted to OSCR the statements in the Charity s 2011 and 2012 Trustees Annual Reports (part of the Charity s accounts) that said all major decisions were made by charity trustees at periodic meetings or else by an individual trustee in the interim as necessary. Trustee C considered the decision to assign the Charity s interest in the Agreement had been taken while acting as the individual trustee in the interim as necessary and had informed the other charity trustees of the decision after it had been made. We have considered the statement in the Charity s 2011 and 2012 Trustees Annual Reports in conjunction with the Charity s Trust Deed. The Trust Deed does not empower individual charity trustees to exercise trustee powers on their own. Charity trustees are appointed to act as a body, each with individual responsibility for the decisions of the trustees as a body. In the absence of such provisions in the Trust Deed, the Trusts (Scotland) Act 1921 provides that a majority of trustees is deemed to be a quorum of trustees, and this provides a quorum for the purpose of making decisions and entering into contracts. Since the Charity had three charity trustees, two were required to make a quorum for decision making. The difficulty for the charity trustees however in making any decision regarding a transaction with The Rangers Football Club plc was that, in terms of the provisions of the Trust Deed, all of the charity trustees had an interest. The Charity s Trust Deed authorises the charity trustees to enter into transactions in which one or more of them has an interest only when at least one of the charity trustees has no interest in the transaction and they have been advised by professional advisers competent to consider the nature of such transaction that its terms are such as would be appropriate to a transaction between persons acting at arm s length. Trustee C acknowledged that in deciding to assign the event to The Rangers Football Club plc (in Administration) the requirements for one charity trustee not to be conflicted and to obtain professional advice had not been met. The charity trustees were all connected to The Rangers Football Club plc and no professional advice had been obtained before making the decision. Trustee C also acknowledged that an inherent conflict of interest had been present since the Charity was set up because charity trustees had always been connected to The Rangers Football Club plc. It would therefore appear this provision in the governing document would never have been able to be met in a transaction with The Rangers Football Club plc. SC033287 The Rangers Charity Foundation _07
5. Conclusion OSCR concludes that since the Charity was set up, there has been an inherent conflict of interest present as a result of the charity trustees connection to The Rangers Football Club plc. Based on the information provided to us, we further consider that the decision-making process in the Charity, which allowed a decision to be taken by one trustee to assign the Agreement with AC Milan Glorie to The Rangers Football Club plc (in Administration) without consultation with the other charity trustees and without a quorum, was in breach of the charity trustee duties. In addition, the conflict of interest presented by the assignation was not managed appropriately and professional advice was not obtained as required by the Charity s Trust Deed. A breach of section 66 charity trustee duties is misconduct in the administration of a charity. When we find misconduct OSCR has powers under the 2005 Act to apply to the Court of Session to disqualify individuals from acting as charity trustees in future. However, when considering use of our powers, we must bear in mind the principles of best regulatory practice, and these require such use to be proportionate, accountable, consistent, transparent and targeted only where there is evidence it is needed. After careful consideration of the circumstances in which the decision to assign the Charity s interest in the Agreement was made, we have concluded that although the decision was a breach of legal duties the circumstances were such that it would not be a proportionate use of our regulatory powers to take further action. The decision to assign the Charity s rights in the contract was made in good faith and in the interests of the Charity given the risk that otherwise the event may not have taken place, in which case the Charity would have received no benefit at all. At the time we opened our inquiry the assignation of the Charity s interest in the Agreement to The Rangers Football Club plc (in Administration) had already taken place. OSCR has no powers under the 2005 Act to direct the Charity to renegotiate the assignation to increase its share of net profit from the fundraising event. We also recognised that the Joint Administrators primary duty to creditors would preclude such renegotiation. We were aware as well that, when tickets for the football match became available for sale, the basis on which the event was going ahead was well publicised. Members of the public may have bought tickets specifically to benefit The Rangers Football Club plc (in Administration) rather than the Charity. Our deliberations included an assessment of the risk the three charity trustees might pose to other charities of which they are also charity trustees, with a view if necessary to monitoring these charities proactively in future. To assess this risk, we wrote asking them for information about other charities with which they are involved as charity trustees. Trustee C remains a charity trustee of the Charity, and Trustees B and C disclosed to us the names of other charities with which they are involved as charity trustees. After assessing carefully the information we hold about these charities, and in the knowledge that we have made Trustees B and C aware of our finding of their breach of duties, we consider that the risk posed is minimal and that it would not be proportionate to undertake proactive monitoring of these charities. SC033287 The Rangers Charity Foundation _08
Trustee A did not respond to any of our requests for information, including a request for information about other charity trustee roles. As a result, we have been unable to assess the risk posed to other charities of which Trustee A may be a charity trustee. Should we become aware that Trustee A is a charity trustee of another charity we will consider the risk this might pose. We have made Trustee A aware of our finding of breach of charity trustee duties. SC033287 The Rangers Charity Foundation _09
6. Outcome Since our inquiry opened, Trustee C has taken independent legal advice to improve the Charity s governance, particularly in relation to its relationship with The Rangers Football Club Limited, the new company. Trustee C appointed two new charity trustees in June 2013. Trustee C has also been advised that the Charity should put regulations in place to govern the Charity s relationship with The Rangers Football Club Limited, and this will be taken forward with the new charity trustees. We have recommended to Trustees A, B and C that they obtain training in their section 66 duties because we consider their understanding of their charity trustee duties needs to be strengthened. We look to them to develop a proper awareness that section 66 requires charity trustees to act in the best interests of the charity and with the care and diligence it is reasonable to expect of a person who is managing the affairs of another person, particularly in relation to decision making, identifying and handling appropriately potential conflicts of interest and ensuring they understand and comply with provisions in the charity s governing document. SC033287 The Rangers Charity Foundation _10
7. Learning points for the wider sector The ability to identify and manage appropriately potential conflicts of interest is a key element of the section 66 charity trustee duties. Charity trustees should be able to identify potential conflicts of interest when they arise, obtaining professional advice or training if required, and should have a policy in place to ensure that any potential conflicts of interest are managed appropriately. Charity trustees should also remember that it is not only the responsibility of individual charity trustees to act only in the interests of the charity and avoid conflicts of interest, but also the duty of their fellow charity trustees to take reasonable steps to ensure that they do so. Further information about handling conflicts of interest is available in our publications Guidance for charity trustees: acting with care and diligence and Who s in Charge: control and independence in Scottish charities. Both of these publications may be downloaded from our website, www.oscr.org.uk. When a charity trustee s appointment is ex officio it is particularly important they are made aware of the responsibilities they are taking on. Charity trustees should ensure that an ex officio trustee, who may be completely unfamiliar with the charity and may never previously have acted as a charity trustee, receives a comprehensive induction into the charity and their section 66 duties to enable them to fulfil their role effectively. Many governing documents contain provisions regarding: o the minimum number of board meetings that must be held each year. When the governing document is silent, it is for the charity trustees to decide how regularly they should meet. However, charity trustees should ensure sufficient meetings take place to fulfil their duties as charity trustees and enable them to have the general control and management of the charity; o the minimum number of charity trustees a charity may have. Charity trustees should ensure the number of charity trustees does not fall below the number required to ensure effective decision making and that they comply with the terms of their charity s governing document. Charity trustees should ensure that they are aware of the minimum number of trustees that must participate in decision making to make certain that the decisions are properly taken. Charity trustees should ensure that information contained on the charity s website furthers the charity s purposes and accurately reflects the actions taken by the charity trustees. SC033287 The Rangers Charity Foundation _11
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