Specific Requirements Placed onCharity Trustees

Regarding Remuneration

The Royal Environmental Health Institute of Scotland, which often refers to itself by its registered trade markof REHIS, is incorporated by Royal Charter. The Institute appoints members of the Council using the powers contained in its Bye-Laws 12.1 to 12.11. At present, the number of members of Council is 27. This is not including the number of places on the Council made available, by Bye-Law 12.1, to elected member nominees of the Environmental Services Committee (or whatever its successors are called) of CoSLA. The Institute, in General Meeting, determined on 22 November 2007 that the number of places is zero.

The Institute is also a registered Scottish charity under the Charities and Trustee Investment (Scotland) Act 2005 (referred to from now on as ‘the 2005 Act’) with a registration number of SC009406. The term ‘registered Scottish charity’ comes from section 13 of the 2005 Act. Confusingly, section 13 includes six different terms which look very similar. However, two of the six terms, including ‘registered Scottish charity’ are reserved for use by charities established under the law of Scotland, or are managed or controlled wholly or mainly in or from Scotland.

The Institute has chosen to remain a registered Scottish charity for three ‘normal’reasons and one very important reason:-

  • Charities enjoy certain reliefs from tax and non-domestic rates;
  • Charitiesgenerally find it much easier to obtain grant funding than organisations which are not charities, although, to date REHIS has not pursued this option;
  • Being a charity conveys a degree of ‘trustworthiness’ and independence from the sectorial interest of either the private or public sectors. Nowadays, charities and similar organisations are often called ‘the third sector’. It is worth noting that charities and other ‘third sector’ organisations are developing their own sectorial interest as well. Up until now there has been little backlash against this, but it is a risk for the future. Although there have been some well-publicised scams and fiddles, Scottish public confidence in charities appears to remain high, having recovered from a pronounced ‘wobble’ when several charities’ misdemeanours attracted a lot of publicity;
  • Article 16 of the Royal Charter states that ‘… provided no revocation, amendment or addition [to the Royal Charter] shall be made which shall cause the Institute to cease to have charitable status.’

A new regulatory framework for charities in Scotland was introduced by the 2005 Act. This included establishing the Office of the Scottish Charity Regulator (OSCR) and the making of regulations under the 2005 Act. The idea behind the new regulatory framework was to reinforce the public’s confidence in charities. However, this has led to a marked tightening-up of the rules affecting charities in Scotland. Quite possibly, this was a much deserved and long overdue tightening-up.

It is easy to identify who are the directors of a company, as directors are notified to Companies House. It is not so straightforward with charity trustees. The 2005 Act has an interesting definition of charity trustees as ‘the persons having the general control and management of the administration of a charity’. (Section 106) I think that it is essential that a charity clearly identifies who these persons are, or someone else might identify them with potentially troublesome consequences. The Council decided on 11 March 2006 that the members of the Council of the Institute would be the charity trustees of the charity. This makes any CoSLA nominee to the Council a charity trustee.

It is important that charity trustees guard against a ‘shadow trustee’ as the 2005 Act’s definition of charity trustee does not require a formal appointment or election to the office. A ‘shadow trustee’ could be someone attending charity trustees’ meetings or an employee whose degree of control of the affairs of the charity goes beyond what could be reasonably expected. It could also be the case that the charity trustees will not take certain actions until they have checked that ‘so-and-so’ approves. A ‘shadow trustee’ may be held legally liable as a charity trustee.

Having identified the charity trustees, it is now time to consider the duties placed upon them by the 2005 Act with specific regard to remuneration.

Sections 67 and 68 of the 2005 Act contain the specific requirements regarding the remuneration of charity trustees and those connected with charity trustees. These are:

  • When a charity trustee provides services to, or on behalf of, the charity or might benefit from any remuneration for the provision of such services by a person with whom the trustee is connected, the person providing the services, termed ‘the service provider’ is entitled to be remunerated from the charity’s funds for doing so only if certain conditions are met.
  • The maximum amount of remuneration is reasonable and is set out in a written agreement between the service provider and the charity.
  • The charity trustees, before entering into the agreement, were satisfied that it would be in the charity’s interest for the services to be provided by the service provider for the maximum amount.
  • That, after entering into such an agreement, less than half of the total number of charity trustees of the charity are:

i.Party to such a written agreement;

ii.Entitled to receive remuneration from the charity’s funds otherwise than by such an agreement;

iii.Connected with any other charity trustee who falls under i or ii above.

  • That the charity’s constitution does not prohibit the service provider from receiving the remuneration.
  • Special provisions are in place for a charity trustee or other service provider receiving remuneration from a charity’s funds if this by virtue of:

i.An authorising provision of the charity’s constitution in force on 15 November 2004;

ii.An order made by the Court of Session;

iii.Any enactment.

Where a charity trustee or other service provider is remunerated in contravention of the requirements of Section 67 of the 2005 Act, the charity may recover the amount of remuneration; and proceedings for its recovery must taken if OSCR so directs (my emphasis).

Section 68(1) makes it clear that ‘remuneration’ includes any benefit in kind and ‘benefit’ means any direct or indirect benefit.

The main thrust of Section 68 is concerned with stating who is connected with a charity trustee. I have simplified the list to look like this:

Spouse

Civil partner

Living together as husband and wife or in an equivalent relationship

Child, parent, grandchild, grandparent, brother or sister (and any spouse of such person)

An institution controlled by the charity trustee or someone connected with them.

A body corporate in which the charity trustee or someone connected with them has a substantial interest.

A Scottish partnership in which one or more of the partners is a charity trustee or someone connected with them.

Section 105 also needs to be remembered as it sets out when a person is to be treated as being in control of an institution or having a substantial interest in a body corporate.

In the Institute’s case, ‘the charity’s constitution’ means its Charter and Bye-Laws. This matter was of such importance that it is actually included in the Charter, as Articles 5 and 6, rather than in the Bye-Laws where most of the details about running the Institute are found.

The relevant part of Article 5 is:

‘… subject to the provisions contained in Article 6 hereof, nothing herein shall prevent the payment in good faith of remuneration to any secretary, treasurer, auditor, examiner, officer, or servant of the Institute or to any member of the Institute or other person in return for any services actually rendered to the Institute…’

The whole of Article 6 is relevant:

‘No member of the Council shall be appointed to any salaried office of the Institute or any such office remunerated by fees, and no remuneration shall be given to any member of the Council except reimbursement of out-of-pocket expenses and interest on money lent provided that any member of the Council who may be acting as secretary, treasurer,auditor, centre secretary or examiner of the Institute may receive proper remuneration in respect of his office but shall not vote on any resolution with respect to his appointment to such office or the remuneration to be paid in respect thereof.

The Warrant for the Royal Charter was signed by HM The Queen on 31 January 2001, thereby making Articles 5 and 6 authorising provisions of the charity’s constitution which were in force on 15 November 2005.

What does this mean:

Payments are at present authorised each year by the Council to the following: Hon Treasurer, Northern and Southern Centre Secretaries, Hon Editor and examiners.

Due to the number of examiners who might find themselves on the Council, the ‘less than half’ provision of Section 67(3)(c) of the 2005 Act could easily cause difficulties. However, I believe that the ‘authorising provision’ of Section 67(5)(a)overrides Section 67(3)(c) in this regard.

The one remunerated appointment that will potentially be disallowed to a member of Council by virtue of Section 67(3)(c) is the that of Hon Editor, as it is not included in Article 6. At present this post is vacant as the Secretary (usually when not with specific reference to the Charter and Bye-Laws called the Chief Executive) undertakes the duties of Editor.

John Frater

24 November 2007

Ref:HB/CX drafts; 12/6/08