The role of charity trustees

An exclusive extract from the brand new book, The CGIUKI Charity Law and Governance Handbook

Under section 177 of the Charities Act 2011, the legal definition of a charity trustee is ‘the persons having the general control and management of the administration of a charity’. The same definition is used under the law of Scotland. In this definition, the word ‘administration’ is potentially misleading. The board of trustees is the governing body of the charity; its trustees are operating at the most senior leadership level within the charity. The trustees have ultimate legal responsibility for the direction and strategic leadership of the charity. In that capacity they have significant legal duties and if they fail to discharge those duties, the have potential legal liabilities.

Trustees’ duties – the legal background

Charity law imposes duties on trustees because they hold a position of utmost trust, which must be discharged with honesty and integrity. The more general duties, such as the overriding duty to act in the best interests of the charity, are largely common law duties. These general duties relate to the core fiduciary obligation of a charity trustee, which is the obligation of undivided loyalty to the charity that trustee serves. Specific statutory trustees’ duties also exist, usually imposed by particular provisions in charity legislation, especially the Charities Act or the Trustee Act 2000 (and related regulations). Most of the specific statutory duties relate to:

  • public accountability and reporting and disclosures; 
  • the protection and correct application of charitable funds and assets; and
  • particular transactions or specific situations.

Some of the specific statutory duties vary in detail for different legal forms of charity. Some are only compulsory for certain types of charity (such as a CIO or an unincorporated charitable trust). Many of the specific statutory duties in the Trustee Act 2000 are only compulsory for the trustees of an unincorporated charity.

General duties

Trustees’ general duties have been developed by the courts over many centuries. Unlike company directors’ duties they have not been codified (set out in statute). These general duties are matters of principle, effectively behavioural standards to which trustees are required by law to adhere. The general duties set the context in which trustees must govern and manage their charities. Trustees are subject to the overriding general legal duty to act in what they honestly believe to be the best interests of their charity. In effect, this is shorthand for the best interests of that charity’s charitable purposes for the public benefit.

Trustees’ general duties are summarised in the Charity Commission’s core guidance for trustees (The Essential Trustee: What you need to know, what you need to do [CC3] July 2015) as:

  1. Ensure the charity carries out its purposes for the public benefit (and does not go beyond its purposes).
  2. Ensure the charity complies with its governing document and with the law.
  3. Act in what the trustees believe to be the charity’s best interests.
  4. Manage the charity’s resources responsibly.
  5. Act with reasonable care and skill.
  6. Ensure the charity is accountable.

The Commission expects that trustees will take reasonable steps to find out about legal requirements and will take appropriate professional advice when they need to do so (point 2).

The courts expect trustees to act on the basis of honest belief in relation to item 3. In the guidance, the Charity Commission states that a trustee ‘must avoid putting yourself in a position where your duty to your charity conflicts with your personal interests or loyalty to any other person or body’. The guidance clearly links point 3 to point 1.

Point 4 is the duty of prudence, which requires trustees to act responsibly, reasonably and honestly in managing the charity on behalf of others (in particular on behalf of the charity’s beneficiaries and the general public). To discharge this duty properly, the trustees need to exercise sound judgement. It is also essential that the trustees ensure the charity remains solvent and is able to meet its financial obligations and commitments as they fall due.

The Charity Commission guidance highlights the importance of ensuring that individuals are eligible to serve as charity trustees. This needs to be verified before an appointment is made. In order to properly discharge their general duties as charity trustees the existing trustees should pay due attention to this before any candidacy proceeds and any appointment is made. In addition, they should take appropriate steps to verify that a potential new trustee is a ‘fit and proper person’ to be involved in managing a charity (as required by tax law with regard to the legal conditions for an organisation being recognised by HMRC as a charity for tax purposes).

Charitable companies

The trustees of charities that are companies have the duties of company directors as well as the duties of charity trustees. There is significant overlap between the two.

CIOs

The trustees of CIOs have all the general duties of trustees. In addition, the trustee of a CIO also has CIO-specific trustee duties:

  1. A duty to exercise the trustees’ powers and perform the trustees’ functions in a way the trustee decides, in good faith, will be most likely to further the CIO’s charitable purposes.
  2. In the performance of the trustee’s functions, a duty to exercise such care as is reasonable in the circumstances, having regard in particular to:

a) any special knowledge or experience the trustee has, or purports to have;
b) if the trustee acts in the course of a business of profession, any special knowledge or experience it is reasonable to expect of a person acting in the course of that kind of business or profession. (See Charities Act, s221(2).)

Cecile Gillard is a lawyer and Kirsty Semple is a chartered secretary in public practice and director of Semple Associates ltd

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