Academy Trusts Guidance for Trustees Jaime Parkes Email: jparkes@vwv.co.uk DDI: 0121 227 3703 Reference: jxp/1v199/1714
1 Introduction 1.1 This note provides some guidance on the duties and responsibilities of the Trustees and Members of an Academy Trust established to operate one or more academies. 1.2 The Academy Trust will be established as a charitable company limited by guarantee and regulated by its articles of association (the Articles). As a company, the Academy Trust would be subject to company law and to the requirements of the Registrar of Companies (commonly known as Companies House). 1.3 The Academy Trust would also be an "exempt charity". This means that it is subject to charity law but will not be registered with the Charity Commission. 1.4 There are two distinct roles involved in the running of the Academy Trust: 1.4.1 the Members; and 1.4.2 the Trustees. 1.5 The Members 1.5.1 The Members of the Academy Trust are the equivalent of the shareholders in a commercial company (save that they do not receive dividends). In simple terms the Members "own" the Academy Trust. They have a number of statutory rights including the right to remove a Trustee (following specified circumstances), the right to amend the constitution (subject to Department for Education (DfE) approval) and the right to receive the annual accounts. 1.5.2 The Members do not have any specific duties imposed on them. They are asked to provide a 'guarantee' such that if the Academy Trust were to be wound up and the assets did not meet all of its liabilities, they would be asked to contribute 10. 1.5.3 Typically, the Members will only meet once a year at the AGM, which is a requirement under the DfE's model Articles of Association. 1.5.4 Where an Academy is sponsored, the sponsor will typically act as one of the Academy Trust's Members (generally with a right to appoint a majority of the Academy Trust's Trustees). Some of the Trustees may also act as Members. 1.6 Trustees 1.6.1 The Trustees of the Academy Trust will be: (a) (b) directors of the company for the purposes of company law; and charity trustees for the purposes of charity law. 1.6.2 In simple terms, the Trustees are responsible for managing the affairs and day to day operation of the Academy Trust and the Academies operated by it. In practice, their powers of management are largely delegated to the Head teachers of the Academies for which the Academy Trust is responsible. 2 General duties of the Trustees 2.1 As a general principle, Trustees will have a general "fiduciary duty" to the Academy Trust. This means that they must act honestly, in good faith and in the best interests of the
Academy Trust at all times. They must also use the powers granted to them by the Articles for the purposes for which they are conferred (i.e. to operate one or more Academies). 2.2 The Trustees must avoid making any 'secret profit' from their position and should ensure that nothing arises from their activities that gives rise to personal gain, unless authorised by the Academy Trust's Articles (see model Article 6). 3 Companies Act 2006 duties 3.1 The Companies Act 2006 specifies seven statutory duties which the Trustees will need to comply with. In summary, these are: 3.2 To act within the Academy Trust's powers: The Trustees will need to act in accordance with the Articles of the Academy Trust and only exercise their powers for the purposes for which they are conferred. In practical terms, this means that the Trustees must ensure that all of the Academy Trust's assets are applied for the charitable objects of the Academy Trust. The model objects (the Objects) are: "(a) to advance for the public benefit education in the United Kingdom, in particular but without prejudice to the generality of the foregoing by establishing, maintaining, carrying on, managing and developing schools offering a broad and balanced curriculum ("the mainstream Academies")] or educational institutions which are principally concerned with providing a full-time or part-time education for children of compulsory school age who, by reason of illness, exclusion from school or otherwise, may not for any period receive suitable education unless alternative provision is made for them ("the alternative provision Academies") or 16 to 19 Academies offering a curriculum appropriate to the needs of its students ("the 16 to 19 Academies) or schools specially organised to make special educational provision for pupils with Special Educational Needs ("the Special Academies"); and (b) to promote for the benefit of the inhabitants of the area in which the Academies are situated the provision of facilities for recreation or other leisure time occupation of individuals who have need of such facilities by reason of their youth, age, infirmity or disablement, financial hardship or social and economic circumstances or for the public at large in the interests of social welfare and with the object of improving the condition of life of the said inhabitants." The Trustees will also need to be satisfied that they have the requisite powers to pursue a particular activity. The powers which the Trustees have are set out in the Articles along with a catch all power which is: "to do all such other lawful things as are necessary for or are incidental to or conducive to the achievement of the Objects". 3.3 If the Trustees do not use the assets of the Academy Trust in furtherance of the Objects, or if they lack the necessary powers, they may act in breach of trust and be personally liable to make good any loss suffered by the Academy Trust (see paragraph 5 for further information). If the Trustees are in any doubt, they should take advice. 3.4 To promote the success of the Academy Trust: The Trustees should act in a way they consider to be most likely to promote the success of the Academy Trust and, in particular, the effective advancement of its charitable objects. In so doing, they should have regard to:
3.4.1 the likely consequences of any decision in the long term; 3.4.2 the interests of the Academy Trust's employees; 3.4.3 the need to foster the Academy Trust's business relationships with suppliers, customers and others; 3.4.4 the impact of the Academy Trust's operations on the community and the environment; 3.4.5 the desirability of the Academy Trust maintaining a reputation for high standards of business conduct; and 3.4.6 the need to act fairly as between the beneficiaries (which include the current and future pupils of the Academies operated by the Academy Trust). 3.5 To exercise independent judgment: The Trustees must be free to make decisions untainted by any considerations of private gain or other conflicts. They must only act in the best interests of the Academy Trust. 3.6 If a conflict of interest arises, it should be handled with transparency and in accordance with the procedure set out in Article 98 to 99 of the model Articles. Further information in relation to conflicts of interest is set out below. 3.7 Please note that an elected or appointed Trustee must act independently of its nominating body and act in the best interests of the Academy Trust. Trustees nominated by a local authority or elected by staff or parents should be particularly aware of their own personal interests. 3.8 To exercise reasonable care, skill and diligence: The Trustees must exercise the care, skill and diligence that would be exercised by a reasonably diligent person with both: 3.8.1 the general knowledge, skill and experience that may reasonably be expected of a person carrying out the functions of a director of an Academy Trust (the Objective Test); and 3.8.2 the general knowledge, skill and experience that an individual Trustee actually has (the Subjective Test). 3.9 As a minimum, Trustees must display the knowledge, skill and experience required by the Objective Test, but if an individual Trustee has specialist knowledge (for example he or she is an accountant or lawyer), the higher Subjective Test must be met for matters which relate to that specialist knowledge. For example, an accountant Trustee is likely to be held to a higher standard in relation to financial matters. 3.10 Trustees who doubt their own ability to take on a particular role should make sure that in accepting the position they are not accepting responsibilities which they will be unable to discharge. 3.11 To avoid conflicts of interest (and payments from the Academy Trust): As mentioned above, the Trustees are under a duty to act without regard to their personal position and without conflict between their duty to the Academy Trust and their own interests. This means that, in general, Trustees must act entirely voluntarily, without payment or any other sort of tangible benefit.
3.12 Trustees must not receive any benefit from the Academy Trust in return for any service they provide to it unless they have express legal authority to do so. That legal authority can come from the Articles or under legislation. The only benefits authorised in the Academy Trust's constitution are those contained in model Article 6. 3.13 The prohibition from receiving benefits is not limited to monetary payments and other benefits to an individual Trustee, but also include those to spouses, partners, relatives and other persons connected to a Trustee. 3.14 Not to accept benefits from third parties: This is unlikely to be an issue for Trustees of an Academy Trust, but a Trustee must not accept a benefit from a third party (for example a contractor who is interested in working with the Academy Trust) which has been given by reason of the recipient: 3.14.1 being a Trustee; or 3.14.2 doing (or not doing) anything as a Trustee; unless accepting the benefit cannot reasonably be regarded as likely to give rise to a conflict of interest. 3.15 To declare an interest in a proposed transaction or arrangement: Trustees should complete a declaration of their personal interests (e.g. employment, directorships, material shareholdings etc) annually. Trustees should also notify the Academy Trust immediately if any other interests arise which may expose them to a conflict of interest and follow the procedure in the model Articles referred to above. 4 Administrative duties of the Trustees 4.1 Trustees also have a number of administrative duties, most of which flow from the Articles and other company law. 4.2 To hold and attend meetings: Trustees' meetings are likely to be the focus of most work by the Trustees. In the context of meetings, Trustees have the following duties: 4.2.1 to attend meetings (having carefully read and considered the agenda and briefing papers); 4.2.2 to participate in meetings in a reasonable, objective and prudent manner, not allowing prejudice to impinge on the debate and decision-making process; and 4.2.3 to contribute actively to the Trustees' decision-making in giving firm strategic direction to the Academy Trust, setting overall policy, defining goals and setting targets and evaluating performance against agreed targets. 4.3 The responsibilities in relation to holding meetings are ultimately those of the Trustees. However, in practice most of these will be delegated to the Clerk to the Trustees. They include ensuring notice of meetings is properly given and that accurate minutes of meetings are taken. 4.4 Other statutory obligations: There are a number of other duties in the Companies Act 2006 and other legislation. They include a duty to keep the statutory books (e.g. a register of Trustees) up to date and the duty to file annual accounts. 4.5 Other legislation which the Trustees should be aware of includes:
4.5.1 the Insolvency Act 1986 (e.g. where a company continues to trade when the directors knew, or ought to have known, that there was no reasonable prospect of the company avoiding insolvent liquidation or if the directors knowingly continue to carry on business with the intention of defrauding creditors in the knowledge that there was no reasonable prospect of the creditors being paid by the company); 4.5.2 the Health and Safety at Work etc Act 1974 places overall responsibility for health and safety in respect of anyone affected by the Academy's activities with the Trustees. The Trustees have collective and individual responsibility (along with the senior management teams of the Academies for which the Academy Trust is responsible) for compliance with health and safety legislation and guidance; 4.5.3 environmental legislation (if it is shown that the Trustees contributed to a breach through consent, connivance or neglect); and 4.5.4 the Company Directors Disqualification Act 1986 (if a Trustees acts while disqualified as a company director because of bankruptcy etc). 4.6 Administrative duties: There is a requirement to keep a register of the Trustees in the Academy Trust's statutory books. Companies House also requires details of all Trustees, which must be kept up to date. A form must be submitted whenever a new Trustee is appointed (Form AP01), or a Trustee resigns (Form TM01) or there is a change to a Trustee's personal details provided to Companies House (Form CH01). These forms can be obtained from the Companies House website (www.companieshouse.gov.uk). 5 Liabilities 5.1 As a limited company, the Academy Trust is liable for debts and other liabilities incurred in relation to its operations, including the operation of the Academies for which it is responsible. It is the Academy Trust which enters into contracts, sues and is sued and holds title to the various assets of the Academy. 5.2 In addition, as a limited company, the Academy Trust can be held criminally and civilly liable for regulatory breaches, including breach of the Health and Safety at Work etc Act 1974, breach of other related health and safety and environmental legislation and breach of the Corporate Manslaughter and Corporate Homicide Act 2007. 5.3 Personal liability of the Members: The liability of the Members is limited to the nominal sum they agree in the Articles to contribute on dissolution of the Academy Trust (i.e. 10). This would only be called upon if the Academies' assets were not sufficient to meet the liabilities of the Academy Trust on an insolvent liquidation. 5.4 Personal liability of the Trustees : As directors of an incorporated entity, the Trustees will generally have no personal liability for the debts or liabilities of the Academy Trust. Trustees may in certain circumstances become personally liable if they act in breach of the duties and statutory / regulatory obligations referred to above, but the risk in relation to this for the Trustees can be mitigated to a significant extent: 5.4.1 Indemnity insurance can put in place to protect Trustees. Provided that the terms of the insurance policy are complied with (e.g. premiums are paid up and circumstances which could give rise to a claim are notified to the insurer), this will protect Trustees unless the claim relates to: (a) any act or omission which the Trustees knew to be a breach of trust;
(b) (c) (d) a breach of duty which was committed by the directors in reckless disregard of whether it was a breach of trust or breach of duty or not; and / or if it relates to the costs of any unsuccessful defence to a criminal prosecution brought against the Trustees in their capacity as directors. 5.4.2 In addition to indemnity insurance, the Courts and the Charity Commission have a power to relieve a Trustee from personal liability where it is considered that a Trustee has acted honestly and reasonably and it is fair in the circumstances to do so, notwithstanding the consequences of his or her breach. Where, on the other hand, the Trustee has been involved in misconduct or mismanagement that was clearly intended or undertaken recklessly, the Court or Commission is unlikely to relieve him or her from personal liability. 5.4.3 The Articles expressly provide that the Trustees, officers and auditors of the Academy Trust are entitled to be indemnified by the Academy Trust if they incur any costs as a result of successfully defending legal proceedings or successfully making an application for relief from liability to the Court. 6 Conclusion 6.1 Instances of personal liability for Trustees are rare. The key points for Trustees are to ensure that they understand their legal duties and obligations, to ensure that their powers are properly exercised and, if they are in any doubt, to take professional advice. 6.2 We do recommend that Trustees also read one of the Charity Commission's publications CC3: the essential trustee: what you need to know, what you need to do (July 2015), which provides additional details on these matters. This guidance can be found on the following link: http://www.charitycommission.gov.uk/publications/cc3.asp. 7 Copyright 7.1 Veale Wasbrough Vizards has designed and developed this document for use by our clients. We reserve copyright and all our moral rights in all our original work. We authorise the Academy Trust to which we have supplied this document to make full use of it for all the normal purposes of the Academy Trust, without time limit and at no additional cost. However, the Academy Trust does not have the right to authorise any other school to make use of this document for their purposes, or to supply any other school with a copy of this document without our prior consent. 7.2 For the purposes of clause 7.1, "school" includes any maintained or independent school, including any single or multi academy trust. This document is provided for general guidance only, and is not intended as specific legal advice for any particular client or transaction. January 2017