Find out here if you have been affected by new rules introduced on 1st August 2018.
New rules were introduced on 1st August 2018 which extend existing rules about automatic disqualification of charity trustees and senior management positions within charities.
Before 1st August, the range of reasons for disqualifying a charity trustee were reasonably narrow, relating mostly to bankruptcy or unspent criminal convictions involving dishonesty or deception.
What does the new law do?
The new law not only introduces a wider range of circumstances trigger disqualification, but also extends the classes individuals affected by the new rules.
The new offences are:
- terrorism-related offences, money laundering, and bribery offences
- violating certain Charity Commission orders relating to finances or property
- misconduct in public office, perjury, or perverting the course of justice
- disobeying an order or direction of the Charity Commission, and
- attempting, aiding or abetting any of the above offences.
The non-criminal offences covered under the new rules are:
- civil contempt of court relating to false statements,
- where someone becomes a “designated person” for reasons linked to terrorist activity, and
- where someone is subject to notification requirements under the Sexual Offences Act 2003.
Probably the more significant issue, however, is the extension of the classes of individuals affected by the new rules to include “senior managers” as well as the charity trustees.
The new law defines two different kinds of senior management functions. The first kind relates to the management of the charity, and the person holding that function can only be responsible to the charity trustees. This is likely to the charity’s CEO.
The second kind involves control over money, and is often the charity’s chief finance officer. Here, the person holding that function can only be responsible to the charity trustees unless he or she is responsible to another employee (usually the CEO) with senior management functions that does not involve control over money.
So, whilst the term “senior manager” will include CEOs and CFOs, the definition in the new rules is wider, emphasising not the title but the function. So, anyone who reports directly to the charity trustees, or is responsible for reporting financial matters to the CEO, CFO or directly to the charity trustees, is likely to fall within this definition. More details on this are available in the Charity Commission’s guidance.
What should charities do now?
- Check your trustee declarations to ensure that all of your trustees meet the requirements of the new automatic disqualification rules.
- Check and update your procedures for individuals currently in post. As it is good practice to check at reasonable intervals that an individual has not become disqualified in the period since they were appointed, it is recommended that all existing charity trustees and senior managers be asked to complete the new declaration form.
- Bring the new rules to the attention of all of your trustees.
- It is also a good idea to look at other official registers, such as the Insolvency Register, Companies House (if the organisation is a charitable company), and the Charity Commission’s “Removed Trustee Register” to check if any disqualifications have been recorded.
- Consider whether you need to adopt a declaration for senior managers to sign. The Charity Commission has made available sample declarations which can be downloaded from its website.
- Identify if anyone who will be disqualified from 1 August 2018 wishes to apply for a waiver from the Charity Commission.
- Update your procedures for appointing new trustees and new senior managers to make sure that individuals are not disqualified. The Charity Commission has published model declarations for trustees and for senior managers which can be downloaded from its website. A signed declaration form must be received before any appointment is made.
What happens if someone becomes disqualified under the new rules?
An individual cannot continue to act when a disqualification takes effect, so he or she must either formally resign, or apply to the Charity Commission for a waiver to continue in their role (see below).
Trustees should formally resign with immediate effect.
If the individual resigns, the charity must consider how that will affect the general governance of the charity. For example, will the minimum number of trustees required by the charity’s constitution still be met?
Charities should take legal advice if a senior manager becomes disqualified, both to ensure that employment law is followed, but also to review relevant job or consultancy contracts to check that the charity is protected.
Any senior managers who are disqualified under the new rules must not continue to act in their current positions. The charity will need to establish with an employee whether or not he or she can continue in employment in an alternative role, or whether their employment will be terminated.
Charities should take legal advice before starting this process.
How can you apply for a waiver?
It is the individual being disqualified who applies to the Charity Commission for a waiver, not the charity.
The Charity Commission will decide whether or not to give someone a waiver based on the circumstances of the individual’s case, the level of risk they present to the best interests of the charity to which the waiver would apply, and whether or not granting a waiver would be likely to damage public trust and confidence in charities.
The Charity Commission has produced guidance on waivers which is available on its website. The board of trustees of the charity may consider supporting a wavier application so that the individual being disqualified can continue in their role. The trustees, however, must consider a range of factors before agreeing to support a waiver to ensure that it discharges its duties correctly, including whether a majority of the trustees supports the application, whether the individual is the best person for the role, and to what financial or reputational risks the charity would be exposed.
If you believe that your role as a trustee or manager has been affected by these new rules, or you want to find out more information on what this role may entail, do feel free to contact Jane Whitfield in our Private Client department on firstname.lastname@example.org or call 0118 958 9711.