OG 41 Disqualification from acting as a charity trustee

Last reviewed:
Last updated:
13 June 2017

Policy Statement/Overview

IMPORTANT NOTE

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  • The guidance has not undergone an extensive review at this stage; it will be reviewed and renumbered at a later date.
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Summary of the guidance

This guidance details:

  • the law regarding when a trustee may be disqualified from acting as such
  • explains the methods by which a trustee may vacate, or be removed from his or her office in the event of disqualification for acting as a trustee
  • describes the consequences arising from persons continuing to act as trustees whilst disqualified
  • explains our duty to keep a register of removed trustees and to make it available for public inspection
  • explains when persons who have spent convictions, or who have been discharged from bankruptcy or from arrangements with creditors are able to act as trustees again. It also explains our powers to waive disqualifications
  • provides a glossary of terms used in this guidance 

Casework Guidance

Please read the Important Note on the front page

OG 41 A1

OG 41 A1 Overview

 

1. Disqualification under Charities Act 2011  

Disqualification for acting as a charity trustee means that a person cannot act as a trustee until the period of disqualification expires.

S178-180 of the 2011 Act provide that a person shall be disqualified for being a charity trustee or trustee for a charity if that person:

  • has been convicted of any offence involving dishonesty or deception (but see OG 41 B4 about spent convictions);
  • has been adjudged bankrupt, or sequestration of his or her estate has been awarded, and in either case he or she has not been discharged, or if he or she is the subject of a bankruptcy restrictions order or an interim order, or in respect of whom a bankruptcy restrictions undertaking has effect, except that there is no disqualification under this paragraph if the charity concerned is a company and leave has been granted under s11 of the Company Directors Disqualification Act 1986 (undischarged bankrupts) for him or her to act as director of the charity (s180);
  • has made a composition or arrangement with, or granted a trust deed for, his or her creditors and has not been discharged in respect of it;
  • has been removed from the office of charity trustee or trustee for a charity by an Order of the Commission under s76(1) and 79 of the 2011 Act, or by an Order made by the High Court, on the grounds of any misconduct or mismanagement in the administration of the charity, for which he or she was responsible or to which he or she was privy or which he or she by his or her conduct contributed to or facilitated;
  • has been removed, under s34(5)(e) of the Charities and Trustee Investment (Scotland) Act 2005 (asp10) (powers of the Court of Session) or the relevant earlier legislation as defined in s179(6) of the 2011 Act (that is s7 of the Law Reform (Miscellaneous Provisions) (Scotland) Act 1990 (powers of Court of Session to deal with management of charities)), from being concerned in the management or control of any body;
  • is subject to a disqualification order under the Company Directors Disqualification Act 1986 or The Company Directors Disqualification (Northern Ireland) Order 2002 (SI 2002/3150 (N.I.4)) to an order made under s429(2) of the Insolvency Act 1986 (failure to pay under a County Court administration order), except that there is no disqualification under this paragraph if leave has been granted for him or her to act as director of the charity (s180 of the 2011 Act).

These provisions apply whether the relevant event occurred before or after s178 came into force. A disqualified trustee cannot act as a trustee but only until the period of disqualification expires.

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2.  Disqualifications under other legislation

lawyer_refer

The child protection provisions of the Criminal Justice and Court Services Act 2000 came into force on 11 January 2001.  Briefly, part II of this Act bans a range of individuals from “working with children” as defined in the Act. Our policies and approach to unsuitable individuals working with children and vulnerable adults can be found in OG 510-2 Charity Trustees: Disclosure and Barring Service.

 

See OG 510-2 section E1 for other relevant legislation about this matter

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OG 41 B1

OG 41 B1 Vacation of Office of Trustee

 

1.  Terms of governing document

S178 of the 2011 Act does not provide for the automatic vacation of office of a disqualified trustee. Although a disqualified trustee may not act in the administration of the charity, whether or not he or she is immediately removed from the office of trustee will depend on the terms of the governing document of the particular charity.

Governing documents of charities do not, in themselves, disqualify persons for acting as trustees. They either terminate trusteeship automatically in the circumstances defined by s178, or they confer a power of removal in such circumstances.

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2.  Automatic vacation when disqualified or prohibited by law

If the governing document of the charity itself expressly provides that a disqualified trustee or a trustee prohibited by law from being a trustee shall cease to be a trustee, then that provision will have effect and the trustee will immediately be removed from office. This will normally be the position with charitable companies but may also apply to other types of charity.

If the disqualified trustee is later given a waiver it will not have a retrospective effect and he or she will have to be reappointed as a trustee (see OG 42 A1).

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3.  Determination of trusteeship in particular circumstances

A specific provision in the charity’s governing document determining trusteeship in any of the circumstances set out in s178 will also end trusteeship independently of any disqualification under s178 and s180 itself.

In such an event, any waiver granted by us would be ineffective, as the trustee would no longer be in office. A waiver under s181 would not remove the disqualification under the trusts. For instance, if the governing document provided that a bankrupt should cease to be a trustee on being adjudged bankrupt, then a waiver in respect of disqualification under s178(1) would not enable him or her to continue to be a trustee while a bankrupt.

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4.  No provision for automatic termination of office circumstances

If the governing document contains no provisions for automatic termination of office, the trustee will remain a trustee but be incapable of acting by virtue of disqualification under s178.  He or she will be counted as part of the trustee body for the purpose of calculating the quorum for a meeting where the quorum is a percentage or proportion of trustees, even though he or she cannot act.

For example, if the quorum is at least 50% of the total number of trustees and there are 7 with the disqualified trustee, the quorum will be 4.  However, if at the meeting there are only 4 present including the disqualified trustee the meeting will be inquorate as the disqualified trustee will not be able to take part in the decision making and governance of the charity.

In any case, he or she can be replaced either:

  • by the trustees appointing a trustee in his place under s36(1) of the Trustee Act 1925 (replacement of a trustee who is incapable of acting); or
  • if the charity’s governing document contains express provision dealing with the removal and/or appointment of a trustee who is incapable of acting, by the exercise of that power.

If the disqualified trustee applies for and obtains a waiver before he or she is replaced, the legal impediment to his or her acting will have been removed and he or she will continue in office and will be able to act.

If he or she is replaced by the trustees (whether under s36 of the Trustee Act 1925 or under the charity’s express trusts) before a waiver is obtained, he or she will not resume office as the trusteeship will have been determined by acts of the trustees and not under s178. In this case, if a waiver is obtained, he or she could be appointed afresh subject to the general procedures and rules laid down in the charity’s governing document.

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5.  Removal by the Commission of trustees disqualified under s.178 of 2011 Act

In all cases we have the power under s80(1) of the 2011 Act (removal of a trustee where he or she does not act and his or her failure to act impedes the proper administration of the charity) to remove a disqualified trustee if it is administratively necessary to fill the post by another trustee. In this case again the trustees may be in a position to appoint a further trustee to fill the post. Alternatively we have the power to appoint another trustee under s80(2) of the 2011 Act. Removal of trustees can only be actioned in line with our Authorised Officer policy.

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6.  Removals under sections 79-81 of 2011 Act because of other convictions

Disqualification arises only under s178(1) in the case of convictions for offences of dishonesty or deception. This means that convictions for other offences do not automatically entail the convicted person being disqualified for being a charity trustee.  An exception to this arises in the critical area of child protection - see OG41 A1 which considers the legislation which disqualifies for trusteeship of children’s charities those who have been convicted for paedophile offences.

Additionally, convictions for other types of offence may justify the Commission making an assessment under the risk framework that may lead to opening a statutory inquiry where the most serious issues come to light. The statutory inquiry might find misconduct in the administration of a charity, for instance, or that the property of the charity has been put at risk (or both). The critical factor to bear in mind here is not necessarily the type of offence alone, but the type of charity, and how its association with such an offender might affect it. Subject to the findings of the statutory inquiry, it might be appropriate for us to exercise our powers under s76 to suspend or remove the person concerned from being a charity trustee. Sections 76(1) and (3) empower us to suspend an individual from being a trustee if:

  • there is or has been any misconduct or mismanagement in the administration of the charity; OR
  • it is necessary or desirable to act for the purpose of protecting the property of the charity (in this context goodwill or the charity’s good name can represent property of the charity).

For removal of a trustee to take place under our powers in s76(1) and 79 BOTH these elements must exist.

One example where misconduct might be easily demonstrated would be a trustee of an animal charity being convicted of cruelty to the animals in the care of the charity. In such a case the offence and the charity are closely related, and both the elements can be justifiably said to be present.

However, the same principle may apply even where the link between the offence and the charity is not as close, but we would need to look at the interests of the charity objectively and be mindful of the human rights of the individual concerned.

An example of this might be in the context of a convicted paedophile who is disqualified for being a trustee of a children’s charity by virtue of the Criminal Justice and Court Services Act 2000 (see OG41 A1). If a convicted paedophile is a trustee of another type of charity, a statutory inquiry may conclude that the property of the charity was in need of protection in terms of s76(1)(b) because the trustee concerned was adversely affecting the good name or goodwill of the charity. 

However, in some circumstances it may be possible to demonstrate that there is misconduct or mismanagement as well. Again using the example of  a convicted paedophile who is a trustee of a charity that is not a children’s charity, we may feel it is appropriate to maintain that:

  • a trustee owes a continuing duty voluntarily to disclose to his or her beneficiaries any circumstances which may materially affect his or her fitness for office;
  • a paedophile conviction (or any other conviction likely to attract widespread public abhorrence) can be such a circumstance;
  • a failure to discharge this duty of disclosure is capable of being misconduct or mismanagement in the administration of a charity in the terms of s18(1)(a);
  • therefore we could be justified in removing the trustee.

If such a case is encountered, it should be referred to Legal Services before action is taken on either of these bases.

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OG 41 B2

OG 41 B2 Acting Whilst Disqualified

 

1.  Penalties and consequences

lawyer_referActing as a trustee whilst disqualified is a criminal offence by virtue either of s183(1) and (3) of the 2011 Act or s11 or 13 of the Company Directors Disqualification Act 1986. Conviction may lead to a fine, imprisonment or both.

 

If it comes to our attention that a disqualified trustee has continued to act in the administration of a charity despite disqualification, we should inform both the trustee concerned and the other members of the trustee body that this is the case and that it must cease immediately. There is no specific statutory duty for us to do so, but it falls within our general duty under s14 of the 2011 Act.  A criminal offence may have been committed.

lawyer_refer

Legal advice should be sought as to whether 

 

  • the matter should be referred to the police with a view to a possible prosecution and/or
  • consideration given as to whether an Order should be made either directing repayment of any sums received by the trustee in question by way of remuneration or expenses during the period of disqualification, or directing the payment to the charity of the value of any benefit in kind received by the trustee during such period.

We must, of course, be absolutely sure of our facts before informing the other trustees that one of their number is disqualified. Incorrect statements about a person being disqualified may be considered to be defamatory, if we failed to take adequate steps to ensure their accuracy before we made them. We should also take care in the way we disclose personal data about an individual to other trustees. See OG 720 (section B1) about our responsibilities under the Data Protection Act 1998. If you have doubts about when or to whom information should be disclosed seek advice from the Information and Knowledge management team.

In suitable cases we would need to ensure that leave to act had not been granted under the Company Directors Disqualification Act 1986 or the Insolvency Act 1986 or by the High Court in Northern Ireland under the Company Directors Disqualification (Northern Ireland) Order 2002 (S.I.2002/3150 (N.I .4). Another obvious area of risk here is a failure to identify accurately the date on which:

  • a relevant conviction becomes spent;
  • a disqualification order under the 1986 Act ceases to have effect; or
  • a discharge from bankruptcy is obtained.

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2.  Validity of actions

As described above, any person who acts as a trustee for a charity whilst disqualified is guilty of a criminal offence under either s183(1) and (3) of the 2011 Act or s11 or 13 of the Company Directors Disqualification Act 1986. However, any acts done as a trustee by a person who is disqualified by virtue of s178 are not invalidated by reason only of that disqualification.They may, however, be invalid if the person continues to act as a trustee even though he has been removed from office under the trusts of the charity. The charity’s governing document(s) must always be considered before any view is expressed about the validity of any acts done by a disqualified trustee.

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3.  Repayment of benefits

Where a trustee is discovered to be acting whilst disqualified, the circumstances in which the situation came about should be inquired into. We should find out whether the disqualified trustee received any payment in cash or kind by way of remuneration or expenses during the time he or she was acting whilst disqualified.

Where a person has acted as a trustee whilst disqualified and has received from the charity any benefits in kind or any payments by way of remuneration or expenses in connection with his or her acting as trustee, we may, under s184(2), direct that person by Order to repay the whole or part of the sums involved.

Where the benefit was in kind, we may determine its monetary value.

The power to require repayment does not extend to sums which may have been received in respect of any time when the trustee was acting whilst not disqualified. S184(2) does not apply to exempt charities.

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OG 41 B3

OG 41 B3 Register of removed and disqualified trustees

 

lawyer_refer

Under s.182(1) of the 2011 Act (as amended by s.11 of the 2016 Act) we have a statutory duty to keep a register of all persons:

  • removed from the office of charity trustee, trustee, agent or employee of charity
    • by any Order removing a charity trustee
      • made under s.79 of the 2011 Act; or
      • by an Order of the High Court since 1 January 1993

 

  • removed from the office of charity trustee or trustee for a charity under section 79A
  • disqualified by Order from acting as a charity trustee or trustee for a charity under s.181A

 

lawyer_referThis register must be available for public inspection in legible form at all reasonable times (s182).

 

This register is maintained by the Intelligence team in Investigations and Enforcement and is open for public inspection on our website. If a member of staff comes across a case where someone has been removed by us from being a trustee whose name is not on the register, this information should be passed to the Intelligence team to rectify the position.

 

lawyer_refer

The Court is responsible for notifying us of persons removed by Order of the High Court.

 

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OG 41 B4

OG 41 B4 Expiry and Waiver of Disqualification

 

1.  Spent convictions

The provisions of s178 do not apply to relevant convictions which are spent for the purposes of the Rehabilitation of Offenders Act 1974 and the Legal Aid, Sentencing and Punishment Act 2012.

The length of time which must pass before a conviction is spent, the rehabilitation period, depends on the sentence imposed by the court and the age of the offender at the time of the conviction.

Some sentences mean a conviction is never spent including sentences of over 4 years imprisonment. The rehabilitation period for shorter sentences is generally between 1 and 7 years from the end of the sentence (usually halved if the offender is under 18 at the time of conviction).

The period for other court decisions including absolute discharges and several forms of order can be shorter.

More details are in Ministry of Justice guidance

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2.  Discharge from bankruptcy

Broadly, discharge from bankruptcy is effected either automatically or by Court Order.

Automatic discharge will occur for bankrupts who have not previously been bankrupt within 15 years of their current adjudication. Such persons, sometimes referred to as ‘first time bankrupts’, will obtain an automatic discharge after the elapse of:

  • one year from the date of the bankruptcy order (Insolvency Act 1986 s279 – as amended by the Enterprise Act 2002); or
  • in cases where the official receiver files a notice with the court stating that their investigation of the conduct and affairs of the bankrupt is unnecessary or concluded, the bankrupt is discharges when that notice is filed;

However, where the official receiver considers that the bankruptcy has come about through some dishonest or blameworthy behaviour on the part of the bankrupt, he may report the facts to the court and ask for a Bankruptcy Restrictions Order (BRO) to be made. If the courts agree to do this, the bankrupt will be subject to certain restrictions for the period stated in the order. One of these restrictions is that the bankrupt is disqualified for being a charity trustee or holding trustee.

The bankrupt may, if he accepts the official receiver’s allegations, offer to enter into a Bankruptcy Restrictions Undertaking (BRU). This does not involve the courts, and may result in a shorter period of restriction than a BRO. In other respects, the restrictions applying to a bankrupt who has entered into a BRU are the same as those to whom a BRO applies, including disqualification for acting as a charity trustee or holding trustee.

The court may also annul a bankruptcy order if it feels it should not have been made in the first place, in which case any BRO or BRU is also annulled, and any disqualification for being a charity trustee or holding trustee is ended.

Under the Insolvency Rules 1986, on successful application to the Court by a bankrupt, a certificate of discharge may be issued which will show the date from which discharge is effective.

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3.  Discharge of composition or arrangement with creditors

If a person is disqualified for acting as a charity trustee or a trustee for a charity under s178(1) of the 2011 Act, he must have entered into a formal arrangement or agreement with his creditors under which they agree to postpone enforcement of their claims against that person and/or accept less than the full amount owed in settlement of the debts.

When that composition or arrangement is worked through the debtor is “discharged” and is able to act as a trustee once more.

Informal agreements or arrangements giving a debtor additional time to pay do not fall within s178(1) of the 2011 Act. However, there are a number of different types of agreement or arrangement which would be within s178(1), some of which are more or less obsolete now. If there is any doubt as to whether a particular form of agreement or arrangement falls within s178(1) or about what evidence is needed to show that it has been discharged, a lawyer should be consulted.

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4.  Waiver of disqualification

We have the power under s181 to waive a disqualification for acting as a charity trustee or trustee for a charity, and indeed under s181(3) must grant an application for waiver in certain circumstances unless we have a good reason not to do so.

This power and the circumstances in which we will use it are described in the OG42 series.

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OG 41 G1

OG 41 G1 Glossary

 

Arrangement Agreement made between a debtor and his creditors, whereby the creditors accept an agreed sum in settlement of their claim rather than make the debtor bankrupt, or in the case of the company, force it into insolvency.

Bankruptcy Restrictions Order

A bankruptcy restrictions order (BRO) is made by the court on application of the Secretary of State or the official receiver. It is granted if the court thinks it appropriate with regard to the conduct of the bankrupt. Many types of behaviour may be taken account of in reaching this decision, including failure to keep adequate records, incurring debts which he had no reasonable chance of repaying , rash or hazardous speculation, fraud and so on.

If the court grants a BRO, the bankrupt is subject to certain restrictions which are normally lifted when he is discharged from bankruptcy. The period during which these restrictions obtain may be from 2 to 15 years. 

Bankruptcy Restrictions Undertaking

A Bankruptcy Restrictions Undertaking (BRU) has the same effect as a BRO, but does not involve the courts. A bankrupt may enter into a BRU if he or she admits the unfit conduct alleged by the official receiver. It is likely to be of shorter duration than a BRO, although while in force, the restrictions are the same.

Composition Agreement between a debtor and creditors to settle a debt immediately by repaying only a part of it.
Sequestration

The taking and keeping of property on the order of a court, especially seizing property from someone who is in contempt of court.

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