Trustees – duties and responsibilities

Introduction

Charity trustees hold a position of utmost trust and are subject to a range of legal duties and responsibilities. They must discharge these duties and responsibilities diligently and honestly.

Checklist

• Under English law, trustees’ duties are a mix of common law duties and specific duties under the Charities Act 2011 and associated legislation.
• The overriding duty of a charity trustee is to act at all times in what the trustee honestly believes to be the best interests of the charity’s charitable purposes.
• Most of the specific statutory duties of a charity trustee relate to public accountability and reporting, the protection and correct application of charitable funds and assets or particular transactions (e.g. land transactions).
• Some specific statutory duties only apply to the trustees of particular legal forms of charity (e.g. the statutory investment duties under the Trustee Act 2000 are only compulsory for the charity trustees of unincorporated charities in England and Wales).

Companies – directors’ general duties

• The trustees of charitable companies have the usual general duties of company directors, as well as their duties as charity trustees. Note that company law modifies some of those duties in their application to charitable companies (the summary below takes account of those modifications).
• The general duties are:
• to act within the charity’s constitution and to exercise their powers as directors for the purposes for which those powers were conferred;
• to promote the success of the company in achieving its charitable purposes;
• to exercise independent judgement;
• to exercise reasonable skill, care and diligence;
• to avoid conflicts of interest;
• not to accept benefits from third parties; and
• to declare direct and indirect personal interests in proposed transactions or arrangements.
• Much of this is both common sense and reflects the common law general duties of charity trustees.

Companies – directors’ specific duties

• There are additional specific duties for directors under the Companies Act 2006.
• For directors of charitable companies, most of those relate to public accountability and reporting (including duties to ensure the company meets its filing obligations and provides required documents and information to Companies House, in accordance with the applicable time limits).
• Such reporting and filing obligations are not difficult to deal with in practice, as almost all the required items and information can now be filed quickly and easily online via the Companies House website: www.companieshouse.gov.uk.

CIOs – trustees’ duties

• The trustees of a CIO have the usual charity trustee duties under the law of England and Wales.
• They also have CIO specific duties under the CIO specific provisions of the Charities Act 2011 the CIO regulations. See checklist: ‘CIOs – trustees’.

SCIOs – trustees’ duties

• The trustees of a SCIO have the usual charity trustee duties under the law of Scotland.
• They also have SCIO specific duties under the SCIO specific provisions of the Charities and Trustee Investment (Scotland) Act 2005 and the SCIO regulations. See checklist: ‘Scottish Charitable Incorporated Organisations (SCIOs)’.

Liabilities for breach of duties

• The exact consequences of a breach of duty depend on the relevant duty and the particular circumstances. They may involve:
• personal liability for the trustees (regardless of whether the charity is incorporated or not);
• an obligation to compensate the charity for losses it has suffered as a result of the breach of duties;
• an obligation for the trustees to account to the charity for any improper payments they, or individuals or organisations connected with them, have received; and
• an obligation to restore property to the charity.

Improper contracts that benefit trustees or connected persons

• Where a contract has been entered into that benefits a trustee or connected person, in improper circumstances, that contract may be void and/or unenforceable by, or for the benefit of, the relevant trustee or connected person.
• The relevant trustee (and, depending on the exact circumstances, possibly also the other trustees) may be personally liable for breach of duties (see above).
• Note that the law protects a bona fide third party who has acted honestly.

Trustees’ duties – Scotland

• Charity trustees have statutory general duties under the law of Scotland.
• A charity trustee is required to act in the interests of the charity and, in particular, to:
• seek, in good faith, to ensure the charity acts in a manner which is consistent with its charitable purposes; and
• act with the care and diligence that it is reasonable to expect of a person who is managing the affairs of another person.
• In addition, the trustees must:
1. ensure the charity complies with any direction, requirement, notice or duty imposed on it by the Charities and Trustee Investment (Scotland) Act 2005; and
2. if there has been any breach of the statutory duties of trustees, to take such steps as are reasonably practicable for the purposes of ensuring:
1. that any breach of the two principal statutory duties (see above) is corrected by the trustee concerned and not repeated; and
2. that any trustee who has been in serous and persistent breach of either or both of those duties is removed as a trustee.
• In relation to a charity trustee who is appointed by any other person, that trustee has particular statutory duties in relation to conflicts of interest. In circumstances capable of giving rise to a conflict between the interests of the charity and the interests of that other person (i.e. the appointor), the relevant trustee must:
• put the interests of the charity before the interests of the appointor; and
• where any other duty prevents the trustee from doing that, the trustee must disclose the conflicting interest to the charity and refrain from participating in any deliberation or decision of the trustees with respect to the matter in question.

Breach of statutory general duties of trustees (Scotland)

• Any breach of the general statutory duties of trustees under the 2005 Act is to be treated as misconduct in the administration of the charity.

Trustees – key responsibilities

• Charity trustees have ultimate responsibility for the charity and its affairs.
• Key areas trustees should focus on include strategic leadership, effective monitoring, financial management, the security of funds and assets, the correct application of funds and assets, pursuit of the charity’s own charitable purposes and the delivery of public benefit.
• The key responsibilities of charity trustees are:
• pursuit of the charitable purposes and the delivery of the public benefit for which the charity is established;
• governance (acting together as the governing body of the charity);
• strategic direction of the charity;
• safeguarding and correct use of all charitable resources;
• financial management and solvency;
• compliance with the charity’s constitution, charity law and regulatory obligations and the general law;
• public accountability of the charity and its compliance with public reporting obligations;
• identification and the correct management of conflicts of interest; and
• risk management.

Procedure

• The procedures trustees should or must follow are in part determined by applicable law and in part by the legal form of the charity and the terms of its own constitution.

Charity Checklists, 2nd edition

Author: Cecile Gillard

Price: £39.95 | January 2019

ISBN: 9781860727610

Charity Checklists is our easy-to-use guide to key areas of charity administration and regulatory compliance. Using a clear step-by-step approach, taking you through a range of common processes, it will transform the way your charity operates in its everyday tasks. Each checklist includes an introduction and explanation, identifies the key points to consider and sets out the procedure in a series of straightforward steps. It is an invaluable and essential resource for anyone involved in the day-to-day running of a charity. Visit the bookshop today.