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Farrer & Co | Automatic disqualification of trustees – the Commission's advice to charities on the new rules

Under the Charities Act 2011 (and its predecessors), a person can be automatically disqualified from acting as a charity trustee if they have committed certain offences or are in circumstances that Parliament has decided are incompatible with charity trusteeship. For instance, a person who has been disqualified from being a company director is automatically banned from being a charity trustee.

The Charities (Protection and Social Investment) Act 2016 (the Act) expanded the list of offences and circumstances leading to automatic disqualification. Furthermore, the Act provides that anyone who is automatically banned from acting as a trustee is also ineligible for employment by a charity in a role with "senior management functions".

The Government chose to delay the introduction of the expanded regime, to give charities (and individuals) that might be affected an opportunity to prepare themselves for the changes.

Parliament has now passed Regulations [1] to bring the regime into force, in two stages. On 1 February 2018, it became possible for an individual facing disqualification to apply to the Charity Commission for a waiver which can permit the relevant individual:

  • to be a trustee, or hold a senior manager position at a named charity or charities;
  • to be a trustee, or hold a senior manager position, at any charity (ie a general waiver);
  • to be a trustee, or hold a senior manager position, at a class of charities;
  • to hold a senior manager position only at a named charity or charities (if this type of waiver is given, disqualification from acting as a trustee remains);
  • to hold senior manager positions only at any charity (this is a general waiver and if it is given, disqualification from acting as a trustee remains).

On 1 August 2018, the longer list of disqualifying circumstances will come into force.

What should charities do to prepare for the changes?

The Commission has published several pieces of guidance to help charities and individual trustees/senior managers get ready for the changes. The Commission's advice for charities, "Automatic disqualification rule changes: guidance for charities", covers:

1. the current rules;
2. the forthcoming changes;
3. what steps charities should take to prepare for the changes; and
4. waivers.

The first two sections contain only a brief outline of the law, but they link to fuller guides on the matters that lead to automatic disqualification and on what constitutes a role with "senior management functions" [2].

The main recommendations on how to prepare for the changes are for charities to (1) check and update the procedures they have for ensuring trustees and senior managers are entitled to hold their positions, and (2) ask prospective and serving trustees and senior managers to sign a declaration that they are not disqualified from acting. The Commission plans to produce a model declaration for charities to use.

It suggests asking trustees and senior managers to sign fresh declarations "at reasonable intervals" and advises trustees to check various official registers to see whether trustees and senior managers are listed. For this purpose, the guidance provides links to the Insolvency Service website (for bankruptcies and individual voluntary arrangements), Companies House (for director disqualifications), and the Commission's own register of people who have been removed from trusteeship.

In recognition of the potential employment disputes that may result from a senior manager having to leave, the Commission recommends that charities review their employment contracts, to ensure they will be protected in such circumstances.

The guidance goes on to advise trustees on what to do if it turns out that a trustee or senior manager will become disqualified in August. They should consider whether any trustee departures will leave enough members on board to form a quorum; in the case of senior managers, they should look at the employment rights of the individual concerned.

Only a person who is disqualified (or facing disqualification) can apply for a waiver, but charities can support a waiver application, so if your charity is facing the loss of a valued trustee or senior manager, there is a way for you to help keep them with you. At the end of the guidance, there is advice on what this will entail, including a bullet point list of matters the Commission will want to know from a charity that is supporting an application. The list includes:

  • whether a majority of the trustees supports the application;
  • the duties of the trustee or senior manager role that the applicant holds (or wants to take up);
  • whether the trustees have assessed and can manage any risks associated with appointing (or maintaining the appointment of) the applicant.

The Commission points out that it will not be able to grant a waiver where an applicant is prevented from acting due to other legislation or because of a provision of the charity's governing document. For example, it is common for charity governing documents to prohibit undischarged bankrupts from acting as trustees; legislation also prevents bankrupts from being trustees of charitable companies or CIOs.

In separate guidance – Automatic disqualification: Waiver decision process and appeals – the Commission describes its approach to considering waiver applications. This contains two lists: factors that make disqualification more likely to be waived, and factors that make waiver less likely. The bottom line is whether granting a waiver will be in the best interests of a particular charity or charities, class of charities, or charities in general. An application for waiver in respect of a specific charity or charities is more likely to be successful than an application for waiver in relation to a class of charities or charities generally.

On 1 February, the Commission put out a news story with the heading "Charity automatic disqualification rules: you can now apply for a waiver". Applications can only be made online – the form is here.

The Regulations state that anyone who has applied for a waiver but not yet had a reply from the Commission will not become disqualified once the new rules come in on 1 August. Nor will anyone whose application has been refused but who has not yet reached the end of any appeal process. Nonetheless, we recommend that you take action early to prepare for the change in the law, even if you consider it unlikely that your charity will be affected.

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[1] The Charities (Protection and Social Investment) Act 2016 (Commencement No. 2 and Transitional Provision) Regulations 2018

[2] Essentially, it means Chief Executives and Chief Financial Officers, but whether or not a person is a senior manager will depend on their position and functions, not their job title. In its guidance for individuals concerned that they may be facing disqualification, the Commission provides a fuller explanation of the term and a downloadable flow chart.

If you have any questions about the forthcoming changes or are concerned that your charity's employment contracts may leave you exposed if a senior manager is required to leave, please contact us for advice.

If you require further information on anything covered in this briefing please contact rachel.holmes@farrer.co.uk or your usual contact at the firm on 020 3375 7000.

This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances. © Farrer & Co LLP, February 2018.

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