Pothecary Witham Weld Solicitors

Has the new charities legislation introduced any new measures in regard to trustees’ duties and in particular has it provided greater protection against trustee liability?

Answer

The role of the trustee remains a voluntary one and the Charities Act 2006 (‘the Act’) recognises this. The duties owed by trustees remain the same. However, some protective measures have been introduced which offer trustees might comfort. These include the ability to purchase ‘Trustee Indemnity Insurance’, a waiver for disqualification and equitable relief measures.

Trustee indemnity insurance covers individual trustees against personal liability in respect of claims for: breach of trust and breach of duty, and any negligence or default in their capacity as director of a corporate charity.

The indemnity insurance does not protect the charity against third party claims and does not relive the trustees of a trust or an unincorporated charity from personal liability in the event the charity cannot pay its debts.

Unless there is an express provision in the charity’s governing document, expressly prohibiting the purchase of trustee indemnity insurance, the charity can pay for the premiums. In the past the consent of the Charity Commission had to be obtained in order to do this. Even if there is an express prohibition, if an approach is made to the Charity Commission, it is likely that the Commission will agree to a Scheme allowing the purchase of such insurance.

In addition to checking the governing documents, the trustees must be confident that the purchase of the indemnity insurance is in the best interests of the charity and that the cost of purchase is reasonable. In addition they have a duty to obtain independent professional advice before doing so.

The policy should include a clause that it does not cover liability in respect of: fines imposed in criminal proceedings or penalties from regulatory action; a criminal proceeding in which a trustee is convicted of fraud, dishonesty or wilful and reckless misconduct or conduct a trustee knew was not in the best interests of the charity.

The Act also introduces a waiver from disqualification as a trustee. Under section 72 of the Charities Act 1993, there exist various scenarios in which an individual will be disqualified from acting as a trustee. The Commission can now waive disqualification after 5 years of disqualification.

In the past, when a trustee had made an honest or reasonable mistake the Charity Commission was unable to grant relief and only the Courts could do this. The charity would have to go through a process of investigation and possibly involve the Courts to get to the bottom of the matter. This might involve obtaining consent from the Charity Commission to enter into such proceedings and could lead to matters becoming fairly complicated and costly. The Act has introduced a new power for the Charity Commission to be able to grant relief when a trustee or an auditor has made an honest or reasonable mistake which has led to a breach of trust.