Automatic disqualification of charity trustees and senior managers
5 November 2018
On 1 August 2018, new provisions of the Charities Act 2011 came into force, bolstering the rules that govern the automatic disqualification of charity trustees and resulting in a longer list of circumstances under which automatic disqualification can be triggered. A further substantial change is the extension of the automatic disqualification regime to people acting in senior manager roles within charities, as well as to trustees.
The new rules
Under the previous regime, a charity trustee was disqualified from acting if he or she fulfilled certain specified criteria, including being an undischarged bankrupt (or similar), being disqualified from acting as a director or having unspent convictions for dishonesty or deception offences. The list of offences has now been extended to include:
- certain terrorism, money laundering and bribery offences;
- misconduct in public office;
- perjury or perverting the course of justice; and
- contravention of certain orders of the Charity Commission in a statutory inquiry.
Attempted offences are now included, as is secondary participation in any of the offences – such as aiding or abetting. In addition, a person will now be automatically disqualified if he or she is named on the sex offenders register, has been found in contempt of court for making false statements, or if he or she has been removed by the Charity Commission or the court as an officer, agent or employee of a charity on the grounds of misconduct or mismanagement.
It is not difficult to see why at least some of the new triggers have been added to the list (indeed, it is perhaps surprising that they were not already there). But this is the first time that the automatic disqualification provisions have been extended to individuals holding senior manager positions within the charity. Consequently, the Charity Commission has updated its guidance on the automatic disqualification rules to explain what is meant by "senior manager position". Generally speaking, the most senior member of the charity's management team reporting directly to the trustees will be a senior manager for the purposes of the new rules. This is likely to be the CEO or equivalent. In addition, if it is not the same person, the most senior individual with responsibility for the charity's finances, such as the CFO, will be caught by the rules – even if he or she reports to the CEO, rather than the trustees. In all cases, it will be the function, rather than the title, of the position that matters most.
Anyone who finds themselves disqualified under the rules can apply to the Charity Commission for a waiver, setting out the events surrounding the disqualification and making a case for it to be lifted. If granted, a waiver will bring the disqualification to an end in respect of the charities named within it, although a waiver will not be effective if the relevant charity's governing document expressly prevents a person from acting in the circumstances which gave rise to the disqualification, as many do.
Trustees and senior managers who are disqualified and who have not yet applied for a waiver (or who have been unsuccessful in obtaining one) must stand down immediately as, with some exceptions, it is a criminal offence to act as a trustee or hold a senior manager position while disqualified. Disqualified individuals may still be able to volunteer, act in an advisory capacity or be employed in non-senior manager positions within the charity.
Complying with the new rules
Charities are prohibited from appointing a disqualified trustee or senior manager, so it is important that they take steps to ensure they do not inadvertently appoint someone who is already disqualified. Allowing a person to remain in office in the knowledge that they were disqualified would constitute a serious incident, which would need to be reported to the Charity Commission. Equally, it is good practice for charities to ensure that they have systems in place to identify trustees and senior managers who have become disqualified post-appointment. Complying with the new rules will therefore involve:
- ensuring that existing trustees and senior managers are aware of the new disqualification provisions and the availability of the waiver process and associated guidance, and reminding them that acting while disqualified is a criminal offence;
- checking that nobody already in a relevant position is disqualified from holding it and putting in place systems to check that those who will be appointed to those positions in the future are not disqualified;
- requesting written confirmation from the relevant individuals that they are not disqualified and that none of the disqualification criteria will apply to them (the Charity Commission has recently published example declaration forms for this purpose); and
- reviewing the position regularly by requiring self-declarations at intervals and making independent checks, such as searching the individual insolvency register, the registers of disqualified directors and of persons who have been removed as charity trustees and, where appropriate, carrying out Disclosure and Barring Service (DBS) checks.
A charity's trustees will not normally be employed by the charity and so, while disqualification of a trustee will constitute a serious incident, triggering the need to make a serious incident report to the Charity Commission, it is unlikely to have any repercussions from an employment perspective.
Senior managers, on the other hand, are likely to be employees and so charities should review and update their relevant employment contracts to ensure that they address the situation whereby such an employee becomes disqualified. This process is likely to entail:
- incorporating a specific declaration from senior managers that they are not disqualified and that none of the disqualification criteria apply to them; and
- making it a contractual requirement that they self-declare periodically and that they inform their employer immediately if they have become disqualified, or become aware of any circumstances under which they will or might be disqualified.
The rules make it an offence to hold, rather than to carry out, a senior manager role while disqualified and so the employment contract should also contain an express provision entitling the charity to terminate the employment of a senior manager in such circumstances. Relevant employees can be required to return any salary or other benefits received during a period of disqualification, and so suspension on full pay pending a waiver application does not appear to be an option.