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Briefing on the changes to the automatic trustee disqualification rules

  • United Kingdom
  • Corporate
  • Education

29-03-2018

From 1 August 2018 there will be changes to the current rules on the automatic disqualification of charity trustees. The rules introduce further restrictions on who can run a charity and importantly apply to senior employees in addition to trustees. Given the recent press coverage of the charity sector these new rules merit close consideration.

Section 178 of the Charities Act 2011 (“the Act”) sets out circumstances in which a person is automatically disqualified from acting as a charity trustee. These are mainly related to bankruptcy and also include unspent convictions for crimes involving dishonesty or deception. Currently, an individual is also automatically disqualified if they are not allowed to act as a company director. It is usually an offence for a person to act as a charity trustee whilst they are disqualified.

On 15 January 2018, the Charities (Protection and Social Investment) Act 2016 (Commencement No. 2 and Transitional Provision) Regulations (SI 2018/47) were made, and these regulations come into force on 1 August 2018.

The new trustee disqualification rules

The two key changes that will be introduced on 1 August 2018 are:

  • people who are disqualified from acting as a trustee will also be disqualified from holding certain senior management positions in charities (this is a significant extension and may require charities taking action now); and
  • there will be an increase in the number of legal reasons that disqualify someone from acting as a charity trustee.

It is worth noting that under the new rules there will be no change to the rule that acting whilst disqualified is a criminal offence or to the right of disqualified persons from being able to apply to the Charity Commission for a waiver.

The full list of wider offences and circumstances that will trigger automatic disqualification with effect from 1 August 2018 are as follows:

  • several terrorism-related, money laundering and bribery offences;
  • violating Charity Commission orders relating to finances and property;
  • misconduct in public office, perjury or perverting the course of justice;
  • disobeying a Charity Commission order or direction on application to the High Court;
  • attempting, aiding or abetting any of the above offences;
  • civil contempt of court relating to false statements;
  • where an individual is a designated person for reasons linked to terrorist activity by the Treasury; and
  • where an individual is subject to notification requirements under the Sexual Offences Act 2003.

The new rules will also apply to certain senior manager positions. The relevant senior manager positions are the Chief Executive positions and Chief Finance Officer positions (or equivalent).

A Chief Executive position is the position that carries overall responsibility for the day-to-day management and control of the charity, and is accountable only to the charity trustees.

A Chief Finance Officer position is the position the person who is accountable only to the chief executive or charity trustees and is responsible for overall management and control of the charity’s finances

How should charities prepare for the new rules?

The new disqualification reasons that show as ‘coming into force’ in the Charity Commission’s disqualifying reasons table should be checked.

If a person is disqualified they must not act as a trustee, or after 1 August 2018, in a relevant senior manager position at a charity.

If someone becomes disqualified and is in a relevant senior manager position at a charity, they will have to cease to act in that position before 1 August 2018. Legal advice will need to be sought about the employment law position.

If a trustee will become disqualified under the new rules, they may apply for a waiver from the Charity Commission.

What should charities do to prepare?

A charity should have in place a system that allows it, before appointing a trustee, to make sure that the person is not disqualified. This system should be reviewed, or implemented if not already in place, to fit the new rules. This can be done by asking prospective trustees to sign a declaration to confirm they are not disqualified; charities should be asking trustees to sign such a declaration as a matter of course.

Under the new rules, the signed declaration will need to be received from prospective trustees and relevant senior managers, and will need to provide that the individual is not disqualified under the current or new rules.

A charity should also be able to check whether current trustees ore senior managers are disqualified, under the current rules or the new rules, with the Charity Commission. It would also be prudent to ask trustees sign fresh declarations at regular intervals.

In addition, a charity should check any relevant official registers which record the names of people who are disqualified from acting as charity trustees, such as the Individual Insolvency Register, the register of disqualified directors maintained by Companies House, and the register of all persons who have been removed as a charity trustee.

Any employment or consultancy contracts for relevant senior managers should be reviewed. This will allow you to decide whether the charity is protected if a person in a senior manager position becomes disqualified and has to resign.

Waivers

A waiver can bring an end to an individual’s disqualification for either:

  • a named charity or charities;
  • a class of charities which share a characteristic, such as charitable purpose; or
  • all charities.

An individual who is disqualified from acting as a trustee may apply to the Charity Commission for one or more of these types of waiver. The Charity Commission will then make a formal decision on the application, considering the case on its merits and whether the waiver would damage public trust and confidence in a charity or charities. Any waivers already in place under the current rules will continue when the new rules take effect.

However, the Charity Commission will not be able to grant a waiver where the rules of the charity that the individual wants to work with disqualify them from being a trustee or from holding a senior management position.

Any person who would be disqualified under the new rules can apply for a waiver from 1 February 2018.

For more information contact

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