Disqualification of Charitable Trustees and Senior Staff under the Charities (Protection and Social Investment) Act 2016.

The Current Law

Under section 178 of the Charities Act 2011 (“2011 Act”) an individual is automatically disqualified from being a charity trustee if their circumstances fall under one of 6 “cases” set out in statute, broadly:

1. They have an unspent conviction for an offence involving dishonesty or deception. There is no singular  definition of dishonesty or deception as each criminal statute will set out whether that particular  offence is carried out dishonestly or with deception.

2. They are an undischarged bankrupt.

3. They have entered into a creditor agreement(s) which has not been discharged.

4. They have previously been a charity trustee and have been removed by order of the Charity Commission (the  “Commission”) or the High Court for reasons of misconduct or mismanagement in the administration of a  charity which they were responsible for.

5. [Applicable to Charities under Scottish Law.]

6. They are disqualified from being a company director.

The disqualification is automatic and, if an individual acts as a charity trustee whist disqualified they may face criminal prosecution. However, an individual may apply to the Commission for a waiver (either generally or in relation to a specific charity). If a waiver is granted then (depending on the circumstances) that individual may act as a charity trustee. Details of how to apply for a waiver can be found on the Commission website.

The New Law

The Charities (Protection and Social Investment) Act (“2016 Act”) will bring in new provisions extending both the definition and scope of the automatic disqualification and also provide the Commission with new discretionary powers to disqualify an individual from being a charity trustee, in situations where automatic disqualification does not apply. The new discretionary disqualification powers came into force on 1 October 2016. The full provisions extending the automatic disqualification are expected to come into force in 2017.

Changes to the automatic disqualification:  

  • Definition: the provisions relating to automatic disqualification have been extended to include unspent convictions for a number of additional specific offences. Examples include money laundering and terror offences.
  • Scope: While an individual is disqualified from acting as a charity trustee they are also automatically disqualified from holding a senior management function at the charity.

A definition of “senior management function” can be found in section 9(6) of the 2016 Act and broadly means a role for which an individual is responsible only to the charities’ trustees. As the exact organisational structure of each charity will differ it is not possible for the Commission to identify specific senior management functions although they have indicated that roles such as chief executive and finance director would be included. A person disqualified as a trustee (and consequently from a position of senior management) may, nevertheless continue to be employed by the charity in a role without senior management functions.

The 2016 Act introduces no new procedure to apply for waivers and therefore the current process as referred to above applies.

The new discretionary disqualification:

In addition to extending the automatic disqualification, the 2016 Act also provides the Commission with new powers of discretionary disqualification. In order to use these new powers the Commission must be satisfied that:

 1. any one of six conditions set out in the 2016 Act applies. For example, an individual has been   cautioned for an offence that, if convicted, would result in their automatic disqualification from   holding the position of charity trustee;

 2. the individual is unfit to hold the office of charity trustee; and

 3. making an order for discretionary disqualification is desirable in the public interest in order to   protect public trust and confidence in charities.

There is no definition of “unfitness” in the 2016 Act. The Commission has suggested that unfitness includes actions or omissions by an individual that are conducted deliberately, negligently or reckless and which impacts on their ability to be a charity trustee. The Commission has made it clear that they are keen to foster trustee diversity and will consider all circumstances when making a decision on disqualification.

The Commission will need to comply with a number of safeguards and processes before using this power which includes giving at least one months’ notice of the proposed disqualification, inviting representations, and permitting appeals. Any discretionary disqualification must be proportionate and not longer than 15 years.

As above, and unless otherwise stated in the disqualification order, a discretionary trustee disqualification will also, as a consequence, result in a disqualification from holding a senior management function within the charity.  If you would like advice on a specific situation, please contact Gerald Kidd or Emily Minett of this firm.