Charity Trustees’ General Duties
(with a look at a few more specific duties as well)
The Royal Environmental Health Institute of Scotland, which often refers to itself by its registered trade mark of 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 determines the number of ‘CoSLA places’ at a General Meeting. The powers for this are contained in Bye-Law 12.1. I am of the view that matters will be more straightforward for REHIS if a General Meeting reduced the number of places to zero. I do not propose that steps are taken to amend Bye-Law 12.1, as the same result can be achieved by making the number of places zero, whilst preserving the power for potential use in the future.
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;
· Charities generally 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.
Section 66 of the 2005 Act contains the general duties of charity trustees. These are:
· To act in the interests of the charity;
· To ensure that the charity acts in a manner consistent with its purposes;
· To act with the care and diligence that it is reasonable to expect of a person who is managing the affairs of another;
· In the event of a conflict of interest between the charity and any person responsible for the appointment of a charity trustee, to put the interests of the charity first;
· If another duty prevents this being done, to disclose the conflicting interest to the charity and not to take part in any related discussion or decision making;
· To ensure that the charity complies with any direction, requirement, notice or duty imposed on it by the 2005 Act;
· To ensure that any breach of the above duties is corrected by the charity trustee concerned and not repeated;
· To ensure that any charity trustee who has been in serious or persistent breach of there duties is removed as a charity trustee.
Through all of the above is a clear notion that charity trustees cannot give up their duties whilst they are charity trustees. So, to coin a phrase, ‘sleeping charity trustees’ are not permitted by the 2005 Act. It also makes it very important that the Council scrutinises the work of the committees.
Sections 67 and 68 of the 2005 Act deal with remuneration of charity trustees for services provided to their charity. This is, I think, a significant matter for REHIS and I should like to address it in the next training session.
Section 69 of the 2005 Act deals with the circumstances under which a person is disqualified from being a charity trustee. These are similar, but not identical, to the provisions of the Institute’s Bye-Law 12.12 .
It is a criminal offence, under Section 70 of the 2005 Act, for someone to act as a charity trustee while disqualified from so doing by virtue of Section 69.
The Charity Trustees’ Annual Report
The Charities Accounts (Scotland) Regulations 2006 were made under section 44 of the 2005 Act. Schedule 1 of the Regulations requires that fully accrued accounts ‘shall be prepared in accordance with the methods and principles set out in the SORP’. The SORP is the Charity Commission’s publication Accounting and Reporting by Charities: Statement of Recommended Practice (Revised 2005). Paragraphs 35 to 40 of the SORP deal with the Charity Trustees’ Annual Report. Paragraphs 41 to 52 are concerned with the content of the report.
Paragraph 37 states, ‘Responsibility for preparing the (Charity) Trustees’ Annual report rests with the charity trustees’. [The SORP appears to use the terms ‘trustee’ and ‘charity trustee’ interchangeably, but the term used in the 2005 Act is charity trustee.]
The Council’s Report, as required by Bye-Law 18.4 can be used as the Charity Trustees’ Annual Report, provided that it meets the requirements of the SORP.
John Frater
28 August 2007
Ref: HB/CX drafts; 12/6//08