Charity Commission Reports Highlight Corporate Governance Issues for Charities and Others

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The Charity Commission has recently published reports on two charities and both highlight valuable points for charities and commercial companies. The Charity Commission steps in where the shareholders of a commercial company might be expected to and the consequences for the directors/trustees are no better either way.

The Commission intervened in one case because an internal conflict meant that the charity had been operating without any properly appointed directors/trustees.  The conflict followed a petition to wind up the charity.

The debt remained unpaid because the majority of the charity’s funds were stuck in an account the bank had frozen because it could not ascertain who should have been on the mandate.  The Commission intervened and appointed an Interim Manager.

There were two conflicting groups claiming to be the charity’s trustees and it was the Commission’s job to decide who really was.  The Commission concluded that it was the group of individuals with day to day control over the charity, despite not having being properly appointed. That is similar to the company law concept of de facto directorship which applies the duties of a director to anyone performing the role whatever their job title.

The Commission’s report highlights the importance of having a clearly identifiable board appointed in accordance with the company’s constitution.  The Commission were concerned that the charity did not have access to banking facilities or control over its assets as a result of never sorting out who was in charge.

 

In the second case Liverpool County Council was the sole trustee of a charity which owned land and buildings.  Concerns were raised regarding the lack of use of the land over a long period and the fact that a Council employee had been allowed to live rent-free in one property for over twenty years.  

The Commission investigated and found that the land had not been used for a significant charitable purpose for many years and by allowing a Council employee to live there rent-free, the Council had breached its trustee duty.  The property should either have been used to further the objects of the charity or invested to generate income. The Commission’s intervention split the charity’s assets, gave them to two other charities and left the Council with a large bill for unpaid rent. 

This report is a reminder to directors and trustees that they must use charity assets in furtherance of the charity’s objects.  It is also a warning to the trustees of charities to ensure that they do not permit their own interests to interfere with those of the charity. The same points apply to all other company directors – assets on the balance sheet need to be there for a reason and use for personal benefit is not always a proper way to exploit them.

Daniel Milnes

About Daniel Milnes

Dan is a Partner and Head of Contracts & Projects. Dan’s blogs cover the areas in which his specialities lie in commercial, regulatory and governance law which cover a broad range of matters dealing with contracts, projects, corporate and group structures, funding and compliance with a range of legal regimes including data protection. This also involves writing and advising on various forms of commercial contracts including joint ventures, development and construction agreements and intellectual property contracts including IT agreements, sponsorships and other rights licensing arrangements.
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