Avoiding Trustee Personal Liability

07-07-2015

Charity trustees can, in some circumstances, find themselves personally liable for their actions, despite being volunteers. The risks can be minimised by taking the following steps:

• Remind yourself of the terms of your charity’s governing document, especially the charitable objects clause. By ensuring that all decisions and actions are within the powers given to trustees by its governing document, as well as within the scope of its objects, the risk of personal liability for acting in breach is considerably reduced. Governing documents have a variety of guises – your charity may have a trust deed, a constitution, a set of rules, a Charter or memorandum and articles of association, depending on its structure.
• If your charity is unincorporated, such as a trust or association, consider changing to an incorporated structure, such as a charitable company or a CIO (Charitable Incorporated Organisation). This limits liability and is particularly important where there are areas of greater risk including property ownership, contact with vulnerable people, employees, and operational health and safety issues.
• Conduct a thorough risk assessment, and ensure that this is regularly reviewed and updated.
• Consider trustee indemnity insurance.
• Familiarise yourself with your charity’s policies and procedures. Where these are out-of-date, or non-existent, ensure that updated and relevant policies are adopted and followed. The Charity Commission recommends all charities should have policies on complaints handling, conflicts of interest, investments, anti-fraud and anti-bribery, and (where relevant) a grant-making policy and/or policies for protecting children and vulnerable people.
• Ensure that your charity has tight financial controls in order to reduce the risk of financial loss.
• Be aware that each and every trustee is responsible for what happens in the charity, and has a duty to act prudently and with reasonable care and skill. This means that each trustee must play an active part in the management of the charity and not simply leave things to one or two individuals.
• Avoid situations where the personal interests of a trustee conflict with those of the charity. The governing documents often specify how conflicts are to be handled, with the conflicted trustee(s) being excluded from decisions concerning the matter in question. These must be followed carefully and demonstrably.
• Take professional advice where needed, from your accountant, solicitor, investment manager, surveyor, even though this will cost money. This helps the trustees to defend themselves if things go wrong. Attempts to save on professional fees often result in greater cost sorting out things which have not been done properly.
• When things go wrong, which may result in serious financial or reputation damage to the charity, make a Serious Incident Report to the Charity Commission. This not only provides the charity with guidance on how to handle the problem, but also reassures to the trustees that they are dealing with it appropriately.

The Charity Commission has power to relieve charity trustees from personal liability where the trustee has acted “honestly and reasonably”. However it expects charity trustees to manage the charity properly and efficiently, and to have effective controls, policies and procedures in place. Where there is any doubt that such measures have been taken and such processes put into practice, professional advice should be sought to remedy those issues.

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