Charity Chat October 2016

David Porter continues his series of blogs with the aims of ‘Charity Chat’ to make Trustees, Directors, Governors and Committee Members (the Trustees) aware of their obligations and the processes that have to be followed to run the Charity correctly. The references I make are to the Charities Act 2011 (the Act) unless stated to the contrary. If there are matters you wish to raise please let me know.

Conflict

In normal circumstances Trustees cannot be paid nor can they benefit from their positions within the Charity, either financially or in kind. Unfortunately it is not always appreciated when a conflict arises and if the transaction takes place it might be voidable or unenforceable. In those circumstances, the Trustee in conflict might find that he/she or the company or institution, has to refund any financial advantage obtained or to pay compensation for any loss suffered by the charity.

Some examples of conflict

• The CEO or principle administrator goes off sick and one of the Trustees agrees to take over the role in his or her absence and to be paid.
• A Trustee arranges for a spouse or child to work for the charity on a paid basis.
• A Trustee borrows the charity's mini-bus without paying for petrol, insurance or a rental equivalent to hiring elsewhere.

If the possible conflicts have not been addressed any payments made to the Trustee, wages to the member of the family or benefit for the use of the mini-bus will have to be refunded by that Trustee. Similarly, where charity property is sold to a Trustee in circumstances where the conflict has not been properly managed, the transaction may be void.

Connected parties

A benefit to the Trustee means any direct or indirect benefit. (Section 187). A benefit also applies to any ‘connected’ person. Not surprisingly, family members, spouses, civil partners, brother and sisters of a Trustee cannot benefit (Section 188) without the conflict being identified and properly managed by the Trustees. Where a Trustee’s interest in an institution or limited company is  substantial or gives control over the same, the connection rules apply. The Companies Act 2006 has similar provisions for directors of charitable limited companies.

Managing conflict

If a conflict of interest were to arise it might be possible to rectify the matter by the Trustees, in the absence of the conflicted Trustee, re-considering the matter. If that is not possible then the conflicted Trustee may have to resign and could be required to refund any financial advantage the conflicted Trustee might have received. Where appropriate an application can be addressed to the Court, with the consent of the Charity Commission, to rectify the matter. Perhaps the easiest way of addressing ‘conflict’ is to have:-

• a register of business, financial, private, personal and other interests signed by each of the Trustees.
• a Conflict Policy agreed by the Trustees. In that context see the Charity Commissions website: CC29 ‘Conflict of Interest’ - A guide for Trustees.
• a standard item of business addressed under ‘conflicts of interest’ for each meeting.