Trustees under attack

Rebecca McCarthy web

What help is there for trustees faced with a difficult decision and conflicting interests?

Following recent scandals involving certain charities, there have been calls for tougher regulation and more accountability for charity trustees. The Charities (Protection and Social Investment) Bill is currently under consideration and, if enacted, will give extra powers to charity regulators and increase protection of charitable donations by protecting charities from serious abuse.

The proposed bill would mean stricter rules for those wishing to become trustees of a charity, and make it easier to disqualify those unfit for that role. The Charity Commission will be able to issue and publish official warnings if they believe trustees have breached their duties and trustees will have no right to appeal. These changes appear welcome in light of the Public Accounts Committee’s recent report on the charity Kids Company, which showed that the charity received substantial government funding despite a lack of transparency and accountability. However, publication of the warnings brings a greater risk of damage to trustees’ personal reputations and begs the question “Who would even want to be a trustee of a charity?”

Well there is some good news: the Charity Commission can provide advice to charity trustees prior to making decisions and where they follow that advice in good faith, they will be considered to have acted properly.

Additionally, all trustees (charitable or otherwise) should find the 2001 judgement of Mr Justice Hart in Public Trustee v Cooper reassuring. The judgement confirms that trustees may gain assistance and advice from the Court before making decisions. Trustees may effectively ask the Court one of four questions:

  1. Can I? – Is the proposed action within the trustees’ powers?
  2. Should I? – Is the proposed action a proper exercise of the trustees’ powers – i.e. they know they have the power to make the decision, but is the decision the right one? The Court may give a “blessing” to the trustees’ proposal however the trustees can choose not to make the decision if they so wish.
  3. I can’t, can you? – Asking the Court to make the decision on their behalf – this is different from 1 and 2 above because once the Court has made its decision, the trustees have to do what the Court has directed.
  4. Should I have? – When action has been taken already the Court can be invited to say whether the action was inside or outside the trustees’ powers or an improper exercise of their powers.

Mr Justice Hart’s judgement in Cooper has frequently been referred to in the higher courts and never questioned nor amended.

Cooper was concerned with private rather than charitable funds and due to the added interests of the general public in charities, the court may wish to use wider tests when deciding whether actions of charity Trustees are acceptable. However, Cooper offers options to all Trustees to test if their decisions are lawfully made.

Sources: STEPUK Parliament (PAC), Trust and Estates Litigation Forum

Rebecca McCarthy is a paralegal in the Private Client department at Barker Gotelee, Solicitors in Ipswich

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