OG5 Appointment of interim managers

Last reviewed:
Last updated:
2 April 2015

Policy Statement/Overview

IMPORTANT NOTE

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Summary of the guidance

This guidance sets out the law and the Commission's position in relation to appointing interim managers for charities.

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Casework Guidance

Please read the IMPORTANT NOTE on the front page

OG5 A1

OG5 A1 Overview - 14 March 2012

lawyer_refer1 The law and legal standing of our appointments  

 

The power to appoint an interim manager is conferred by s76(3)(g) of the Charities Act 2011. We can exercise this power of our own motion, and it does not require any application to be made by the trustees of the charity. Nor does it require the agreement of the trustees of the charity.  

S.78 of the Act contains supplementary provisions relating to the appointment of the interim manager. The provisions allow us to specify, by Order, the functions that we require the interim manager to carry out. They also provide for Regulations - currently the Charities (Receiver and Manager) Regulations 1992 (SI 1992 No. 2355) see OG 5 C1 - which make provision relating to the remuneration and conduct of the interim manager. [These Regulations, made under the Charities Act 1960, as amended by the Charities Act 1992, remain in force under the 2011 Act as its successor legislation, under the terms of the Interpretation Act 1978]. The Charities Act 2006 replaced "receiver and manager" with the title "interim manager".

 

We can exercise our powers set out in s.76(3), to appoint an interim manager for a charity, at any time after we have instituted an inquiry under s.46. However, we must first satisfy ourselves that:

  • There is or has been misconduct or mismanagement in the administration of the charity; or
  • It is necessary or desirable to act to protect the charity's property.

 

There is no obligation in law for us to give prior notice to the charity trustees of our intention to exercise the power. However, we will issue a Statement of Reasons to the trustees setting out why we have used this power – see OG117-7 section 3.

 

The Order is equivalent to the inherent power of the Court to appoint an interim manager in charity proceedings. Because of this, and despite the fact that there is a tendering process, there is no legal contract between us and the interim manager, or between the interim manager and the charity. Our acceptance of a practitioner onto our lists or a proposal from a practitioner about a potential appointment does not create a legal right to remuneration.

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2 How we use this power  

Appointment of interim managers needs to be viewed as an option which may be available to caseworkers dependent upon the circumstances of particular cases. The option to appoint an interim manager is one of our regulatory powers.  It is exercised when its use is in proportion to the difficulties that have arisen within a charity. OG 5 B1 considers the use of this power in terms of risk and proportionality, with OG 5 B2 looking at the assessment of cases.

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3 List of potential practitioners for this service  

Experience of interim manager appointments has been built up within the Commission since the introduction of the Charities Act 1992. The Commission's procedures are periodically reviewed and refined in order to develop a more extensive list of potential suppliers.

 

The current list of practitioners available to undertake these appointments can be found on the Commission's web site.

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4 Handling interim manager cases

We need to ensure that appointments are effectively and efficiently managed and that interim managers conduct themselves in accordance with the Charities (Receiver and Manager) Regulations 1992 and the Code of Practice signed by interim managers when added to our list of practitioners.

 

Whilst we take an active interest in the interim manager and the work being done it is not for us to say how the appointment should be managed – see OG5 B4 section 1.

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5 Levels of authority

The decision to appoint an interim manager will be discussed with the case officer’s Line Manager and a case for the appointment made in accordance with OG 5 B2. This must include written legal advice.

 

The appointment should be authorised in writing by the Head of Unit. The Order should be signed also by the Head of Unit. However, where they are not available the Order can be signed by an alternative Head of Unit with appropriate powers on the basis of the authority already given. The person signing the Order must ensure that its content properly represents what has been authorised.

 

The Head of Investigations and Enforcement must give approval where the interim manager will be paid on an indemnity basis. That approval must be given before the appointment is made. The Chief Executive must approve cases where the Head of I&E's delegated financial authority does not cover the likely expenditure or their budget is inadequate to meet the cost.

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6 Accountability and transparency of interim manager appointments

Interim managers hold a position of trust within the charity to which they are appointed. Their appointment is by Commission Order rather than by a contract with the charity. In fulfilling their duties we expect interim managers to be accountable and transparent in their dealings on behalf of the charity thereby ensuring public trust and confidence in the charity.

 

To encourage accountability and transparency we will keep appointments under regular review and expect interim managers to report to us in line with regulations. Such reports are accepted by us on a confidential basis to encourage candour and openness.

 

Appointments may be challenged by use of our decision review procedures or through the Charity Tribunal. We report publicly on our web site about our interim manager appointments.

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OG5 B1

OG5 B1 Criteria for selecting cases and proportionality of action - 14 March 2012

1 Use of interim managers and our role as a regulator  

The Commission's approach to regulation is one of early detection and resolution of abuse and maladministration in charities.

 

Whilst the use of this power has significant implications for the management and administration of a charity it is nevertheless appropriate to consider this option early on in the actions of a case. We are likely to consider appointment of an interim manager where there is significant risk to charitable assets, income, its services or beneficiaries. An interim manager can only be appointed in the context of a s.46  inquiry.

 

This approach cannot be considered without reference to the Commission's Risk Framework.  In deciding whether or not to appoint an interim manager, it is necessary to balance the monetary cost and possible detrimental effects to the charity against potential gains. The gains will be in terms of stopping or preventing abuse, protection, or proper application, of assets, protecting beneficiaries or services to beneficiaries. As part of this process it is necessary to consider whether those gains can be achieved by other means which do not involve the risks.

 

The guidance set out below considers the nature of appointments and how we should look at potential cases and the elements within those cases that would lead us to consider the appointment of an interim manager.

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2 Underlying considerations before an appointment is made

Irrespective of the issues identified within the case itself that would lead us to believe that an interim manager should be appointed, there are key factors that will need to be satisfied or understood before any appointment goes ahead. These are:  

  • An interim manager appointment is only ever intended as a temporary measure.  Nevertheless, experience has shown us that the temporary nature of the appointments can vary, with short appointments running for a matter of days or weeks and others that extend into years. This clearly shows the importance of being clear about what is to be achieved by the interim manager and by when, of strictly monitoring appointments and clear reporting by the interim manager. These aspects are considered in OG 5 B4.  
  • We should never enter into an appointment without consideration of an exit strategy. This does not prejudge the action of the interim manager or tie their hands to a specific conclusion. Clearly the decisions about management and administration of a charity, or the issues which led to the appointment, sit properly with the interim manager for the duration of his or her appointment. An exit strategy is merely a clear idea of what we want to achieve by the appointment and is open for reconsideration in the light of emerging facts. It is realistic to think in terms of resolution of particular problems, recovery of funds, appointment of new trustees, revised administration procedure or recommendations about the charity's future.
  • lawyer_referThe charity must have sufficient funds to support an appointment (unless the appointment is to be made on an indemnity basis). It must be recognised here that not all assets of the charity will be expendable and therefore will not be available to pay the interim manager.  There may even be issues as to whether funds held in a charity's bank account actually belong to the charity (eg proceeds of crime, are the subject accountant_referof a debt or their ownership by the charity is in dispute). Legal and accountancy advice should be taken on these issues.  See OG 5 B3 section 2.1 concerning remuneration issues.
  • The appointment of an interim manager is not a substitute for a formal investigation, which will need to continue while the interim manager is in place.  Although we may require the interim manager, as one of their functions, to carry out enquiries into particular matters concerning the past administration of the charity and to report to the Commission, this action is not an inquiry under s.46 of the Act in itself.

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3 The extent to which an interim manager might be used within a charity

The appointment of an interim manager can be a contentious issue with the trustees of the charity concerned, despite the fact that this is simply, on our part, an administrative solution to problems that have arisen. However, there will be cases where trustees are aware of our intentions to appoint and agree with our action.

 

Irrespective of whether the trustees welcome an appointment, it will always be necessary to explain why we have implemented this action and the extent of the interim manager’s functions. The extent of those functions will obviously depend on the circumstances of the case but there are a number of options available to us when considering the nature of the appointment itself. The interim manager might be appointed:

  • to administer all aspects of the charity's affairs to the exclusion of the trustees;
  • to administer particular aspects of the charity's affairs to the exclusion of the trustees, leaving the trustees to manage the rest of the charity’s affairs (for example, day-to-day running of the charity); or
  • to undertake a particular task to the exclusion, or with the assistance, of the trustees, for example the sale of particular charity property where there may be a conflict of interest.

 

These options again underpin the question of proportionality of approach to appointments.

 

In the case of a charitable company, it is important that Companies House is made aware of the change of administration when an interim manager is appointed, and in due course, discharged (this is a legal requirement of the Companies Act 2006). This is because, depending on the scope of the appointment, the interim manager may become the person responsible for dealing with a range of company law formalities.  Companies House will also need to ensure that its Compliance Team corresponds with the appropriate person in respect of any outstanding accounts and returns, otherwise there is a risk that the company will be struck off the Register without any consultation with the Commission. 

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4  Identifying the reasons that lead to problems within charities

Caseworkers in Investigations and Enforcement will be able to identify where major problems have arisen in charities. This section does not seek to identify every individual issue that might arise but looks instead at the underlying problems within a charity that may give us reason to appoint an interim manager.

 

Trustees are responsible for the effective and efficient running of their charity and for the proper application of charity property. In the majority of cases it will be the actions of the trustees that lead to difficulties. Those actions might best be described in the following ways:

  • Trustees are unable or unwilling to carry out the purposes of the charity.
  • Conflicts within the trustee body create an environment where decisions cannot be properly taken.
  • An individual, who might be a trustee or employee, dominates the decision making process.
  • Trustees are not properly appointed, or there are doubts about who the trustees are.
  • Trustees do not make adequate provision for control of financial affairs.
  • Trustees receive unauthorised benefits.
  • Trustees have conflicting roles, for instance a local authority whose duties as trustee conflict with its policies as the local authority.
  • Trustees who preside over disproportionately high administration or fund-raising costs.
  • Where the independence of trustees is compromised or undermined – for example, where a company or other body has appointed trustees and determines their actions.
  • Trustees who allow for funds to be spent outside the stipulated objects of the charity, showing a reluctance to comply with proper application of charity funds or ignoring the probity of applying funds by reference to their purposes.
  • Trustees unwilling or unable (for instance where all trustees are implicated in the decision making process that led to the situation) to recover misapplied funds where these are clearly recoverable.

 

The above factors may not be automatically apparent without reference to the problems identified within the charity. Those problems might manifest themselves in the following ways:

  • Major financial difficulties arising from lack of prudence in financial dealings, such as proper advice not taken, or decisions made with incomplete information;
  • Lack of activity within the charity;
  • One or more trustees making decisions in their own personal interests;
  • Members of the charity disputing the validity of the appointment of trustees;
  • Failure to observe fund-raising legal requirements;
  • Lax financial procedures allowing improper use of charity funds or access to them by inappropriate people;
  • Law breaking by the charity bringing it into disrepute;
  • Failure to address or identify significant risks to charity property, its beneficiaries or its reputation;
  • Internal disputes that have spiralled out of control.

 

This list is not exhaustive and caseworkers should be aware of other issues that come to light that could indicate misconduct or mismanagement in the administration of the charity.

 

The nature of the trustees’ response to the problems arising within the charity may well be an indication of whether misconduct or mismanagement has occurred and whether the issues can be resolved without the appointment of an interim manager.

 

Misconduct includes any act which the person committing it knew (or ought to have known) was criminal, unlawful or improper.

 

Mismanagement includes any act that may result in significant charitable resources being misused, a charity's reputation being seriously undermined or the people who benefit from the charity being put at risk.

 

Misconduct or mismanagement and the risk to charity property justify the use of our powers under s.76 of the Charities Act to appoint an interim manager.  It is the degree of damage already done or likely to be done, that will tend to influence the decision to actually appoint an interim manager.

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OG5 B2 

OG5 B2 Assessment of cases - 14 March 2012  

 

1 Functional responsibility and notification of the Order

OG 5 B1 sets out the underlying principles and features of cases that would indicate when we might wish to appoint an interim manager. Interim Manager cases will be undertaken within Compliance Division by the Compliance Investigations Unit.

 

A statutory inquiry under s.46 of the 2011 Act must be under way before an interim manager can be appointed. Under section s.86 of the Charities Act 2011 we must send a copy of the Order and a Statement of Reasons (SoR) for making the Order to the charity (if a company) or to each of the charity trustees as soon as practical after making the Order.

 

In most cases "as soon as practical means" means at the time the Order is made. However, section s.86(5) allows that where the sending of the Order and SoR would prejudice the inquiry or not be in the interests of the charity we can delay this process. However, once the justification for doing so no longer applies we should provide the copy documents and SoR as soon as possible.

 

The SoR should be set out and structured in terms of:

  • the harm suffered by the charity (or the risks of suffering harm) of such seriousness that justifies regulatory intervention;
  • the action required (ie the appointment of an interim manger) to rectify that harm (or protect that charity from harm); and
  • the trustees are unable or unwilling to take that action themselves; and
  • none of the other Commission's powers (especially those given specifically as an alternative to appointing an interim manger) are sufficient or appropriate in the circumstances to deal with the harm (or risk of harm); and
  • control of the charity (or of its net assets) can be restored to the charity trustees once the action has been taken.

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2 Assessment and authorisation of individual cases

A comprehensive record should be maintained on file of all steps taken or considered in Compliance prior to consideration of an interim manager. This includes any other protective steps under s.76 of the 2011 Act. The case officer should prepare a detailed assessment for the authorising officer analysing the problems in full. The assessment should set out:

  • whether the appointment is being made under s.76(1)(a) or (b) of the 2011 Act, or both;
  • the evidence to support this;
  • the precise grounds for making the appointment;
  • the proportionality of the decision in the light of the extent and nature of the risks posed along with any modifying factors that might persuade us that an interim manager is the best solution in the circumstances as opposed to other powers at our disposal under s76.  

 

The assessment will be based on the Commission's Risk Framework

 

lawyer_referThe decision to appoint an interim manager will be discussed with the case officer's line manager. Legal officers will usually have been involved in case planning but any recommendation to the Head of Unit to make an appointment must include written legal advice.

 

accountant_referIn some cases where financial issues are involved, written accountancy advice may also be required.

 

The appointment should be authorised in writing by the Head of Unit. The Order making the appointment should be signed by the Head of Unit. Where the Head of Unit is not available the Order may be signed by an alternative Head of Unit with appropriate powers on the basis of authority already given. The person signing the Order must ensure that its content properly represents what has been authorised.

 

Case officers and their managers will need to highlight potential news or parliamentary interest in such cases to the Press and Public Affairs Team.

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OG5 B3

OG5 B3 Consideration and acceptance of case proposals - 14 March 2012 

1 Selecting potential interim managers from the list of approved practitioners - 14 March 2012

 

1.1 List of approved practitioners  

We aim to ensure that our list of approved practitioners includes potential interim managers with sufficient coverage in terms of the type of work and tasks they are able to undertake and a geographical spread.  It will be unlikely, therefore, that we will need to look beyond the list when we make an appointment. To make an appointment other than from the approved list, authorisation must be obtained from the Head of Investigations and Enforcement (IAE). Circumstances would need to be exceptional and reasons provided as to why the approved practitioners are not appropriate for the case.

 

Should an appointment be made other than from the approved lists, the appointee would be required to sign up to the Code of Practice and provide other details in line with the procurement process for interim and manager approval. The Head of Procurement should be consulted about this process. 

  

1.2 Qualities required

The range of functions assigned to an interim manager will vary considerably according to the problems that the charity is experiencing. The list of potential interim managers is supported by matrices showing details of approved practitioners by case category and regional areas. The matrices are reviewed on a regular basis.

 

Each practitioner is required to sign a Code of Practice before they are added to our list. The Code of Practice sets out the standards we expect from an interim manager undertaking an appointment with a charity. This means that issues of qualification and competence have already been checked prior to an individual appointment and we can concentrate on the proposals put forward for dealing with the charity's problems when interviewing potential appointees.  However, potential interim managers need to declare any areas where a conflict of interest might arise in the case at issue.  A conflict may arise, for example, where a practitioner or any person from his or her team have, within the last three years:

  • acted for the charity as its auditor, reporting accountant or independent examiner;
  • been retained to act as its professional advisor or consultant for any purpose;
  • have had close connections with the charity through employment  or trusteeship.

 

Such a practitioner or member of his or her team should not be short-listed where these considerations are known. This will ensure that, as far as possible, candidates for the job are objective.

 

Other points for consideration at this stage are that the proposed person should:

  • have no interest (in the legal sense) in the property under administration;
  • have sufficient time for and commitment to the job;
  • be within the Court's supervisory jurisdiction (ie resident within England or Wales).

 

1.3  Security

lawyer_referThe Charities (Receiver and Manager) Regulations 1992 authorise us to obtain security from the interim manager.

 

This security normally takes the form of a bond, issued by the interim manager's insurance company. The bond indemnifies the interim manager should he or she cause a loss to the charity by negligent administration or by misappropriation of the charity's funds. Some interim managers, for example insolvency practitioners, may already have specific insurance for this purpose and we would not therefore require a further bond.

 

The cost of the bond is normally borne by the interim manager within the overall agreed remuneration for the assignment. The arrangement to give security can properly follow the appointment where an urgent appointment is required; however, this must be actively followed up as a point of urgency itself.

 

1.4  Short-listing to appoint practitioners from the approved list

Once the Head of IAE has given authority to make an appointment the short-listing panel process can begin. The panel will consist of:  

  • the Head of Unit;
  • the case officer; and
  • a lawyer.

 

The Head of Investigations will not be involved in the panel unless the Head of Unit considers it a high risk appointment and requires it. If the case has particular accountancy issues it may be appropriate to include an accountant on the panel.

 

Each panel member must declare in writing any previous dealings they may have had with any of the interim managers on the shortlist. The declaration should also clearly state whether or not hospitality or inducement of any kind had been received from any of the persons mentioned.

 

The information we hold about potential interim managers allows us to concentrate on matching the capacity, geographical location, relevant experience and qualifications to the requirements of the charity and the problems it faces.

 

We will identify potential interim managers from our list to provide a short-list. Short-listed applicants will be given relevant information about the prospective appointment and asked to submit their proposals. Short-listed applicants will usually be interviewed by the panel. In some cases there may be only one suitable prospective practitioner. In such cases a pre-appointment discussion of the case should take place between the practitioner and the panel.

 

1.5  Final choice of provider

The acceptance of any case proposal will be made on the basis of:

  • the approach to the specified work and ability to achieve outcomes;
  • the terms under which remuneration may be charged (eg for an initial assessment phase or until all specified work is completed);
  • a clear remuneration structure, including any add on costs such as VAT, travel and subsistence expenses;
  • the proportionality of the fees to the work proposed and outcome to be achieved, bearing in mind that the cheapest is not always be best;
  • availability within timescale;
  • confirmation of indemnity insurance appropriate for the job;
  • confirmation that no conflict of interests exists on the part of the practitioner.

 

1.6 Notifying trustees and other agencies

The question of notifying the charity trustees of the interim manager appointment will form part of the case discussion. Under s.78 of the Act we are required to send a Statement of Reasons for making the Order to the charity (if a company) or to each of the trustees as soon as practical after making the Order. There is no legal obligation to give prior notice of our intention to appoint an interim manager but in the majority of cases we are likely to advise the trustees in advance of the appointment.  

 

If the appointment of the interim manager is in respect of a charitable company, it must be reported immediately to Companies House.

 

1.7 Other action required on appointment of an interim manager

Once the appointment has been confirmed and the Order made we will put a flag on the Register of Charities indicating that the appointment has been made and naming the interim manager. Case officers and their manager should also continue to liaise with the Press and Public Affairs teams where there is continuing press or parliamentary interest.

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2  Remuneration of interim managers

 

lawyer_refer2.1  Our power to remunerate

Our power to determine the amount of remuneration for interim managers is found in the Charities (Receiver and Manager) Regulations 1992.

We may disallow remuneration if the interim manager has:

  • failed to give security in the manner which we have specified on an indemnity basis; or
  • failed to discharge satisfactorily any functions we have imposed or to submit reports as provided for in the Regulations.

 

Our power to disallow remuneration shows how important it is to regularly monitor interim manager appointments and raise concerns where we do not consider that functions are being properly discharged.

 

It is important also to be precise about setting out the remuneration structure, how payment will be authorised and what work will be remunerated. This should be set out in writing when we make the appointment. We need to be confident about work done before authoring payment of charity funds.

 

The cost of an interim manager is normally payable out of the existing income funds and future income flows of the charity (unless appointment is on an indemnity basis and there is insufficient income in the charity).  For this purpose "income" includes restricted income, ie income that may be applied only for a particular purpose of the charity.  It does, however, mean income as distinct from capital.  Where there is not enough income to meet the authorised remuneration the interim manager will have any power normally available to the trustees to convert expendable capital into income.  This might include the sale of assets such as cars or computers. Where necessary, and it can be justified, we can authorise any permanent endowment held by the charity to be spent (on replacement terms if practical) on the remuneration of the interim manager.

 

2.2  Methods of remuneration

When inviting case proposals we will indicate the basis on which we consider remuneration should be paid.  All case proposals returned should indicate the basis upon which remuneration is to be claimed and also make a clear distinction between remuneration, expenses and disbursements (ie additional fees expected to be paid out on behalf of the charity by the interim manager to another party, such as a solicitor who would need to pay search fees on the purchase of a property for their client). The case proposals will need to make clear the elements for which remuneration is to be paid. In some cases we may decide to appoint an Interim Manager for an initial assessment stage only, in other cases, for all specified work to be completed. It is important to have clarity about the work to be remunerated at the start of the appointment as this will have an impact in cases where an interim manager makes a request for additional fees – (see section 2.5 below).

 

For those powers and duties of trustees that are conferred on the interim manager, he or she is entitled to the same indemnity as the trustees.  That indemnity covers expenses for administration and management of the charity and in taking legal advice on behalf of the charity with all related disbursements.  An interim manager is not indemnified for the cost of legal advice in relation to his or her own personal position.

 

A number of options are open to us when considering the basis for payment of interim managers.  Each option may have advantages and disadvantages, but can be used alone or in combination to ensure the interim manager achieves his or her purpose whilst giving the best value for money for the charity. These options are:

 

Quantum meruit

This is basically the rate for the job, however long it may take.  This is usually worked out on the basis of an hourly rate of staff time with an allowance for other costs, trouble and responsibility. As the nature of such an arrangement is open-ended we would only agree to this type of payment with a remuneration cap. The danger of a package based on quantum meruit is that the fee may escalate if the assignment becomes protracted.

 

Remuneration cap or capped fee

This is not a payment option in itself but a device by which we set an upper limit on the interim manager's remuneration and disbursements.  It can be usefully applied with a quantum meruit based payment as a means of restricting the overall cost to the charity.  It is best used where we have a reasonable expectation of the work involved but where it is not so clearly defined as to provide the basis for a fixed fee payment.

 

Fixed fee

This means that the interim manager states the total fee (inclusive of disbursements and indemnity bond) which will be charged irrespective of staff time or other factors.  A fixed fee basis is rigid and has in the past led to re-negotiation with interim managers where the nature of the assignment has changed.  

 

Use of fixed fee on its own is most appropriate where there is a specific task for which the practitioner can make a sound estimate of cost.  Example of this may be the sale of a specific property, preparation of an options report or to take specific action within a short deadline. Whilst a fixed fee payment would not always be our preferred mechanism for payment, it is a useful option which can be exercised for short-term initial assessments. We might use it where we are unsure whether the charity's assets exceed its liabilities and we might make a fixed fee appointment so that the interim manager can make an initial assessment of the financial health of the charity. 

 

Incentive-based remuneration

Payment in this circumstance will depend on the amounts of money recovered for charitable purposes by the interim manager and from which an agreed percentage will be paid to them.  This type of remuneration can be useful where dissolution of a charity with assets is likely and/or the interim manager is likely to have a number of optional routes to follow.  There may need to be an incentive to follow a particular route that will maximise the benefits accruing to beneficiaries in the short and long term.

 

Whilst incentive-based remuneration can be a useful tool when looking to maximise assets for existing and future beneficiaries, it can pose difficulties and should not be used where it creates a conflict between the personal interest of the interim manager and those of the charity. For example, where the interim manager is required to recover property belonging to the charity. If the interim manager is to be paid by reference to whatever is recovered the methods used to make that recovery (for instance, to sue) may run contrary to the reputational interests of the charity.  Much will depend upon the objects of the charity and its future prospects.  Maximising assets as a short-term goal may cause damage to a charity's reputation in the longer term, which will need to be balanced against the needs of beneficiaries.  The interim manager, like trustees, is required to act in the best interests of the charity. An incentive-based approach may be more appropriate where an interim manager is appointed to trace and release assets for a number of dormant charities. There is also the option of mixing a fixed fee payment with incentive-based remuneration. 

 

Pro bono

This means that the interim manager would work without charging a fee but would be able to claim for expenses and disbursements.  It has happened in past cases where we worked in conjunction with another regulator and an officer of that regulator was appointed as an interim manager because of his or her very specific skills and regulatory access to other legislation to remedy matters. Use of this mechanism is unlikely to be a regular occurrence but nevertheless should remain an option. A pro bono appointment would still require us to actively monitor tasks and expenses claimed.

 

2.3 Records to be kept by interim managers

Interim managers will have their own methods for record keeping as determined by their own working practices or company policy.  In terms of the work that is carried out by an interim manager for a charity he or she will need to record the costs incurred by grade against work done and time taken.

 

The interim manager will also be expected to supervise and monitor work being done for him or her on behalf of the charity by third parties, eg solicitors dealing with a sale of land.  He or she should keep records of work done and invoices that have paid out in relation to that work.  We would expect to see copies of invoices and a description of work done when a claim is made for disbursements.

 

The rates used for the grading structure must be those previously agreed when the interim manager was appointed for the assignment. The work done must tie in with the specification for the assignment agreed at the outset of the job, and the time taken must be reasonable given the nature of what has been done and by whom.

 

2.4  Drawing fees and payment of sums on account

Payment from charity funds for work done by the interim manager should not be made until we have authorised it.

 

We do not expect an interim manager to wait until all aspects of an assignment are completed before payment is made. Neither is it our policy to authorise payments from charity funds before any functions are carried out or before progress has been made with the assignment.  It is important therefore to consider the extent of the work to be done, its nature and the input required by the interim manager at different stages of the job.  It may be helpful to discuss with the interim manager when invoices should be submitted.

 

Our authorisation for the interim manager to draw fees from charitable funds is made in writing, which confirms the amount to be drawn. 

 

2.5  Requests for increased fees

Occasionally interim managers ask us for fees in excess of those originally negotiated. This should not be a regular occurrence as we expect all case proposals to identify the elements of work to be carried out in accordance with our specification and to quote for that work.  We would however give consideration to such a request where:

  • the functions required of the interim manager and/or the nature of the work has changed in a substantial way to that which was agreed at the outset;
  • the request is made in writing and in advance of any proposed expenditure required; and
  • reasons are given to support why the task cannot be completed within the agreed fees or expenses.

 

Where this occurs we would then need to consider in detail the reasons why the change has occurred, the necessity for the change in work or approach and the benefit to the charity. 

 

This will involve:

  • consideration of the original terms of the appointment and the approach determined at that time; and
  • consideration of the additional functions and/or the nature of the changes to the anticipated work and the reasons presented for the changes.

 

Within these considerations we will need to determine:

  • whether the additional work or changes to the nature of the work are necessary;
  • whether the existing interim manager has the necessary experience to work in line with these changes;
  • whether it is appropriate that they continue with the assignment or whether to appoint another interim manager perhaps with more appropriate experience;
  • the extent to which the charity will benefit by the changes proposed;
  • whether the charity has the funds to pay for any increased remuneration; and
  • the basis on which any increase might be paid.

 

The case officer should consult with the Head of Unit and take legal or accountancy advice as appropriate. They should then present the arguments in writing to the Head of Unit for a decision on whether such payments can be authorised.

 

IAE Monitoring, Assessment and Development should also be informed of the request as there may be monitoring or handling issues from which we might learn.

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3 Charity Commission indemnity

The interim manager is normally paid from the charity's current income funds and future income flows.  Exceptionally, we may decide that it is in the public interest to appoint an interim manager even where the income of the charity may be insufficient to meet the remuneration. The interim manager may seek indemnity from us in respect of the difference between the remuneration, which we authorise him or her to draw, and the income actually available from the charity. The costs would be met from the money voted to us for our own administrative expenses. In taking the step to use public funds we must be satisfied that the appointment is necessary and proportionate in the public interest and why other options, such as appointment of additional trustees, are not appropriate.

 

We consider that:

  • the giving of such an indemnity is potentially within the scope of our statutory functions set out in s.15 of the Charities Act 2011; and
  • the indemnity could thus, in principle, be financed out of the Commission's budget.

 

The decision to proceed with an appointment on an indemnity basis must be approved by the Head of Investigations and Enforcement. The appointment can only go ahead if:

  • his or her delegated financial authority can safely cover the likely extent of the liability;
  • notification is given to the Chief Executive as Accounting Officer; and
  • there is adequate financial provision within the relevant budget for the years in question.

 

Any case exceeding these criteria should be referred to the Chair of the Charity Commission and to the Chief Executive as Accounting Officer and, at their discretion, to HM Treasury.

 

lawyer_referaccountant_referWe need to make every effort to assess as reliably as possible the assets and liabilities of the charity (both actual and contingent), including where relevant, the levels and timing of any future known or anticipated income and unavoidable operating expenditure that can reasonably be expected in the circumstances. This provides a financial baseline for the decision before appointing an interim manager on an indemnity basis. This assessment should be reviewed by the Head of Unit, an accountant and a lawyer before being passed to the Head of Investigations and Enforcement. 

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OG5 B4

OG5 B4 Handling and monitoring interim manager appointments - 14 March 2012

1 Ongoing case handling and supervision of interim manager appointments

lawyer_referThe Commission is prevented by law from acting in the administration of charities (s.20 of the Charities Act 2011. Nevertheless, we have an obligation to supervise the interim manager in exercising the functions conferred in the appointment and to ensure that these functions are discharged satisfactorily.

 

As we have made the appointment and because the interim manager is being remunerated, we expect the work to be conducted in accordance with high standards of public administration. The aim of the Commission's supervisory role is to secure an effective framework in which the interim manager can carry out his or her work whilst keeping us regularly informed of progress and ensuring ongoing effective communication.

 

The case proposal documents and order of appointment specify our expectations for formal reports, including their content and timing. It is the duty of the case officer to ensure these reports are submitted or obtained, and acted upon. Furthermore, case officers are expected to encourage a constructive dialogue with the interim manager, as this will play a part in building trust and ensuring the standards of work we expect.

 

Case officers are expected to actively manage progress of the interim manager against the original tender and costs incurred and should encourage the interim manager to set target dates for completion of key tasks and ask for explanations if these dates slip. The overall aim is to allow the case to move forward as quickly as possible without exerting undue influence on any connected parties and without interference in the legal and fiduciary duties and responsibilities of the interim manager.

 

Whilst we supervise the appointment and encourage discussion with the interim manager, we cannot substitute our judgement for his or hers or seek to impose solutions to issues. This point was prominent in the case of John Weth & Others v The Attorney General & Others High Court Chancery Division 29 November 1997 (Unreported). This will not preclude us from discussing possible options in neutral terms with the interim manager but we should not insist on any particular outcome or attempt to influence him or her in that role.  We might, however, make general points such as the difficulty encountered in practical terms with certain actions or about matters of expense in applying a particular type of sanction.

 

Case officers and their managers are responsible for maintaining impetus in interim manager cases and need to undertake regular case reviews. It is important to keep careful note of any contact with the interim manager. The Head of Unit should be informed if there is any concern about the pace of progress or indication that the interim manager is not complying with the terms of the appointment.

 

Clearly, where we are not satisfied with the interim manager's administration and management of the charity in the context of the discharge of his or her functions then (both in what is achieved and the way it is done), we may (after giving due notice to, and considering representation from, the interim manager) either:

 

  • disallow remuneration [Regulations para 3(3)]; and/or

 

  • discharge the interim manager [Regulations paragraphs 4(1)(b), (3)].

 

lawyer_referconsultSuch steps are clearly those of last resort and we should explore all other ways of securing an efficient and effective conclusion to the appointment. Legal advice should also be taken.

 

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2 Reporting arrangements

As detailed in section 1 above there is an expectation on interim managers to submit reports to us about progress on the case. This is not only good practice but is a legal requirement.

 

lawyer_referThe Charities (Receiver and Manager) Regulations 1992, Regulation 5 sets out the minimum requirements for reporting to the Commission. The Regulations are reproduced in full at OG 5 C1.

 

In summary, the Regulations ask for a first report not later than three months after appointment and, for as long as that person holds office, further reports not later than one month after each anniversary of the appointment. In practice, we require the final report as soon as possible following the closure of the case so that we can publish the Statement of Results of Inquiry (SoRI). We will discuss the SoRI with the interim manager before it is published.

 

A final report is required not later than three months following the end of the appointment. This final report will not be required where the appointed person ceased to hold office one month or less after an anniversary of appointment where a report had been made at that anniversary.

 

Failure to submit reports in accordance with the regulations can be a reason for removal of the interim manager.

 

Whilst the Regulations set out the minimum requirements for reporting, our policy is to request a monthly report. This should not be an onerous task and should consist of a simple update of progress for the assignment. More detailed reports should be set for appropriate points within the process or where there are matters of significance to report.

 

Reports and other communications between the interim manager and the Commission are accepted on a confidential basis under section 41 of the Freedom of information Act 2000. It is important that we do not prejudice the actions of the interim manager during the course of his or her appointment. We may, however, decide to include information from the interim manager when we produce the SoRI report at the end of the case.

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3 Challenges to interim manager appointments

An interim manager appointment is not always viewed as a positive action by parties involved and we may be challenged about our appointment. We should always ensure that our reasons for appointment are sound and that they are explained clearly to all involved.

 

The trustees or any other person who is or may be affected by the making of the Order can ask us to review our decision and/or appeal to the First-tier Tribunal (Charity).

 

A decision review must be requested within 3 months of being notified of our Order. An appeal to the Tribunal by the trustees must be made within 42 days of the date on which notice of our decision was sent to them. Any one else who is or may be affected has 42 days to make an appeal from when the final decision was published. In both cases weekends and bank holidays are included in the 42 days.

 

Our process of regular review of interim manager Orders is outline at section 6.3 below.

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4 Advice under section 78

lawyer_referUnder s.78 of the Charities Act 2011, the interim manager has the same power as charity trustees to seek advice from us under s.110 of the Act. We may also apply to the High Court for directions on any matter arising from the interim manager functions.

 

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5 Duration of appointments, exit strategy and bringing the appointment to an end

5.1 Duration of appointments

The duration of the appointment will depend upon the extent and nature of the remedial action or task required. A case involving the sale of property when the property market is slow may take well in excess of a year. When litigation is involved the appointment may last considerably more than a year. We will need to take such issues into consideration when drawing up case proposal documents and in the assessment of the proposals received.

 

5.2 Exit strategies

The exit strategy is seen as a key part of any inquiry case. It is a view of what might happen with the charity and those involved, given the circumstances of the case and within an expected time frame. Whilst the strategy is a reasonable estimation of what might be achieved it is not an immovable object and should be adapted to changing circumstances. We should not seek to impose a particular outcome on an interim manager.

 

The point of an exit strategy, however, is to remain focussed on a final outcome with a view to discharging the interim manager and to close the inquiry within an optimum time that is appropriate to circumstances.

 

5.3 Bringing the appointment to an end

Unless we bring the appointment to an end prematurely as highlighted in section1 above, we would not normally discharge the interim manager until the terms of the appointing Order have been met. Where there are competent and willing trustees to take matters forward we would not wish to keep the interim manager in place for longer than is absolutely necessary, although there may be some requirement for a hand-over period. We should also remember that not all appointments will be to the exclusion of existing trustees and where the appointment is for a specific task, once that task is completed then the interim manager will need to be discharged promptly by Order.

 

It should also be noted that, once appointed, an interim manager cannot choose to retire or leave the appointment. They can only be discharged by Order of the Commission.

 

5.4 Removing an interim manager from our list

We have discretion at any time to review our list of approved practitioners and consider whether they satisfy the criteria to remain on that list. Beyond the scope of our regular review of the approved practitioner list we will need to consider whether an interim manager should remain on the approved list where we have brought an appointment to an end prematurely because of failure to provide security or discharge of his or her functions satisfactorily.

 

Performance of the interim manager to carry out the requirements of the assignment should feature in the assignment review process as shown below and the Head of IAE should be fully briefed on any concerns about the appointment. He or she will then take the view whether or not to remove that interim manager from our approved list. Where our intention is to remove, the interim manager should be informed in writing and given an opportunity to make representations. The decision to remove will be made by the Head of IAE. After notification of the interim manager a revised list will be published.

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6 Review of appointments and procurement process

6.1 Overview of individual appointments

lawyer_referThe Commission is under a statutory duty to review temporary Orders under s.76(6) of the 2011 Act, this includes interim manager appointments. Orders appointing interim managers are reviewed every 2 months by the Commission as part of good case working practice. The decision to discharge the Order as a result of a review under section 18(13) can be appealed at the Charity Tribunal, as can the decision not to discharge the Order. The trustees will be notified of the review and be told of their rights to a Decision Review and appeal. A request for a decision review - see OG 736, should usually take precedence over the regular review. If it is decided subsequently that the order should stand then the order will fall back into the pattern for regular review under section 18(13).

 

6.2 End of assignment debrief

At the end of each interim manager assignment there will usually be a debriefing session between the interim manager and the case team. The case team should consist of anyone with a particular interest in the case, usually the case officer, manager, legal officers and accountants. The purpose of this is to consider the impact of the appointment, whether any aspect of the assignment might have been done differently by us or the interim manager and whether there are lessons to be learned from the case.

 

6.3 Reviewing the list of approved practitioners

As part of the process of ensuring value for money for charities and maintaining up-to-date credible information for ourselves, the list of approved practitioners is reviewed periodically.

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OG5 C1

OG5 C1 The Charities (Receiver and Manager) Regulations 1992 - April 2009

 (© Crown copyright)

           Citation, commencement and interpretation

1         (1)  These Regulations may be cited as the Charities (Receiver and Manager) Regulations 1992 and shall come into force on 1st November 1992.

           (2)  In these Regulations -

           “the 1960 Act” means the Charities Act 1960;

           “the appointed person” means a person appointed by order under section 20(1)(vii) of the 1960 Act to be receiver and manager in respect of the property and affairs of a charity;

           “the relevant charity” means the charity in respect of which that person was appointed; and

           “the relevant order” means the order by which that person was appointed.

           Security by appointed person

2         The Commissioners are hereby authorised to require the appointed person to give security to them for the due discharge of his functions within such time and in such form as they may specify.

           Remuneration of appointed person

3         (1)  The Commissioners are hereby authorised to determine the amount of an appointed person’s remuneration.

           (2)   The remuneration of an appointed person shall be payable out of the income of the relevant charity.

           (3) The Commissioners are hereby authorised to disallow any amount of remuneration of an appointed person where, on the expiry of the time specified in the notice referred to in regulation 4(2) below and after consideration of such representations, if any, as are duly made in response to such a notice, they are satisfied that he has failed in such manner as is set out in paragraph (a) or (b) of regulation 4(1) below and specified in such a notice.

           Notice of failure to, and removal of, appointed person

4         (1)  Where it appears to the Commissioners that an appointed person has failed -

           (a)  to give security within such time or in such form as they have specified, or

           (b)  satisfactorily to discharge any function imposed on him by or by virtue of the relevant order or by regulation 5 below, and they wish to consider exercising their powers under regulation 3(3) above or paragraph (3) below, they shall give him, whether in person or by post, a written notice complying with paragraph (2) below.

           (2)  A notice given to an appointed person under paragraph (1) above shall inform him of -

           (a)  any failure under paragraph (1)(a) or (b) above in respect of which the notice is issued;

           (b)  of the Commissioners’ power under regulation 3(3) above to authorise the disallowance of any amount of remuneration if satisfied as to any such failure;

           (c)of their power under paragraph (3) below to remove him if satisfied as to any such failure; and

           (d) of his right to make representations to them in respect of any such alleged failure within such reasonable time as is specified in the notice.

           (3)  On the expiry of the time specified in the notice referred to in paragraph (2) above and after consideration of such representations, if any, as are duly made in response to such a notice, the Commissioners may remove an appointed person where they are satisfied that he has failed in such manner as is set out in paragraph (1)(a) or (b) above and specified in such notice (whether or not they also exercise the power conferred by regulation 3(3) above).

           Reports by appointed person

5         (1)  This regulation makes provision in respect of the reports which are to be made by an appointed person to the Commissioners (and which, in addition to the matters which are required to be included by virtue of paragraphs (2) to (4) below, may also include particulars of any matter which, in his opinion, should be brought to their attention).

           (2)  An appointed person shall make a report to the Commissioners not later than three months after the date of his appointment setting out -

           (a)  an estimate by him of the total value of the property of the relevant charity on, or shortly after, the date of his appointment;

           (b) such information about the property and affairs of the relevant charity immediately prior to his appointment as he believes should be included in the report, notwithstanding that it may also be eventually included in a report under section 6 of the 1960 Act; and

           (c) his strategy for discharging the functions conferred on him by or by virtue of the relevant order.

           (3)  For as long as an appointed person holds office as such, he shall make a report to the Commissioners not later than one month after each anniversary of his appointment setting out -

           (a)  an estimate by him of the total value of the property of the relevant charity on that anniversary of his appointment in respect of which the report is required to be made;

           (b)  a summary of the discharge by him of the functions conferred on him by or by virtue of the relevant order during the twelve months ending with that anniversary; and

           (c)  where there are changes to his strategy as last set out in a report in accordance with paragraph (2)(c) above or, as the case may be, this sub-paragraph, those changes.

           (4)  Subject to paragraph (5) below, an appointed person shall make a report to the Commissioners not later than three months after the date when he ceased to hold office as such setting out -

           (a) an estimate by him of the total value of the property of the relevant charity on that date; and

           (b) a summary of the discharge by him of the functions conferred on him by or by virtue of the relevant order during the period ending with that date and beginning with either -

           (i) the date of his appointment; or

           (ii) if that date is more than twelve months before the date when he ceased to hold office as an appointed person, the day immediately after the last anniversary of his appointment.

            (5)  Paragraph (4) above does not apply where an appointed person ceased to hold office one month or less after an anniversary of his appointment and a report had been made to the Commissioners in accordance with paragraph (3) above in respect of that anniversary.

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Code of Practice and Statement of Requirements for Interim Managers

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