“It sounds like a joke, but in our work we often find situations where Trustees have not been properly appointed and the results can be disastrous for the charity concerned.” Jo Coleman, head of the the charities team at IBB Solicitors, looks at some common failings.

when is a trustee not a trustee?

Charity Boards can often find it difficult to recruit, retain and motivate good trustees. securing a good Board is not just about finding good people, but also making sure that the balance of skills around the Board table is right and the group dynamic works. we have often been surprised at board meetings stacked with high-achieving trustees with impressive CVs, that may fail to challenge the senior management team or hold them to account.

Getting a Board to work is a hard business – particularly when voluntary trustees may only meet five or six times a year for a few hours and may not know each other well.

You can become so focused on board recruitment and succession, that sometimes the simple mechanics of how trustees are appointed can be overlooked.

The starting point must be your governing document. it is there you will find the provisions that govern the way in which your charity may appoint or elect trustees.

The mechanismindividuals can generally become trustees in one of four ways: • By appointment by the existing Board;• By election from amongst a wider group

of members or stakeholders;• By nomination by local councils or other

representative and stakeholder bodies;• ex officio – by virtue of holding another

office. in each case you need to follow the proper mechanisms set out in the governing document. we have heard of nominated trustees who hold the balance of power having been appointed by the wrong local authority. or an ex officio trustee who has left his main office continuing to serve on a trustee board without being co-opted or appointed.

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confirmaTion of eligibiliTywhether appointed, nominated or elected, many governing documents will specify that a trustee may only take office once he has signed a declaration confirming that he has consented to act. The Charity Commission now also recommends that charities ask new trustees to sign a declaration of eligibility to act as a charity trustee. The Commission’s standard declaration includes confirmation that the trustees are not disqualified from serving as charity trustee by virtue of sections 178–182 Charities act 2011. You also need to ensure that any specific eligibility criteria prescribed for your Board are met – whether a religious confirmation, a particular educational qualification or an age limit.

for the past few years hMrC has wanted any charity that reclaims gift aid to ask all trustees to sign a declaration that they are fit and proper persons. it is useful to combine the confirmation of willingness to act with the forms of self-certification that they are able to hold office. a pro forma trustee declaration that meets all the current requirements can be found at http://goo.gl/6nf3u.

You should also check that you have complied with any provisions intended to balance the Board – between scientists and non-scientists; elected and appointed; beneficiaries and non-beneficiaries; or members and non-members. depending on how your governing document is drafted, any appointment that upsets these balancing provisions may be ineffective. You need to be particularly careful not to upset the required balance when using co-opting provisions to bring individuals on to the Board.

WiThin limiTsit goes without saying that you must have at least the minimum number of trustees required to have a quorate meeting, and generally if the number of trustees falls below the minimum number, the trustees can only act to appoint additional trustees. Just as importantly, if your governing document provides that you have a maximum number of trustees, then you cannot simply add one additional trustee because it is expedient or beneficial for you to do so.

managing roTaTionThere are many charities where trustees retire by rotation on an annual basis. others have provisions where trustees are appointed for a fixed term. if your trustees are supposed to be

appointed at an annual general meeting, and you have not held annual general meetings for years, then are your trustees still in office? Many boards struggle to ‘manage’ the retirement by rotation process to make sure the ‘right’ trustees are retired.

fixed Term failingsother governing documents specifically provide for a fixed term of office – say, three years. if those trustees have not been re-appointed and are now sitting round the board table in their fourth year of office, it is unlikely that they will be considered to have been properly appointed. we have known charities where the whole Board has served for longer than their fixed terms, have not been re-appointed as trustees and are still continuing to sit round the Board table and act as charity trustees.

holding onit is also incredibly common for charities who want to hold on to a ‘super’ trustee to try to find a way to circumvent the provisions that do not allow trustees to serve for more than a fixed number of terms or a fixed period of office or mandate a fallow year: “we simply cannot lose them,” they cry. The trouble is, the governing document says “no” and keeping such trustees in post risks their appointments being invalid. at the very least it is bad governance. fixed terms of office, rotation mechanisms, and maximum length of terms have all been adopted for a reason – to ensure that the Board does not grow stale and can be re-energised by new blood and ambition.

These issues and difficulties are not uncommon in charities of all sizes. some point to the saving provisions in their articles, which say that if it is later discovered that a trustee was not properly appointed, none of the decisions taken during their ‘defective’ period are invalid. however most saving provisions only work if you did not know about the irregularity at the time. so if you know you have an issue your best move is to fix it as quickly as you can, whether by amending your governing document, or re-appointing a trustee whose term has lapsed. often the steps needed to ‘fix’ an issue are relatively straightforward and uncostly, though generally someone somewhere will have to confess to having overlooked the relevant rules. still, a little embarrassment is highly preferable to a court decision challenging the authority of the Board.

liabiliTy WiThouT proTecTionfor those individuals who have not been properly appointed but are behaving as trustees in any event, they may unwittingly become shadow directors – where they may have all the burden and responsibility of trustees in essence by acting qua trustee and therefore becoming a type of shadow trustee – without any of the protections that ’real’ trustees may have, such as protection from trustee indemnity policies and a robust indemnity from the charity.

turning a blind eye may only be storing up problems for a later date, if there is split on the Board and every vote counts (and the vote of the additional trustee is challenged) or if a decision of the charity is later appealed and the validity of the trustee appointments questioned. for the sake of a few minutes confirming the position, it is not worth exposing your charity to the risk of getting it wrong.

finally, although the records at Companies house and the Charity Commission are not determinative of who are the charity’s properly appointed trustees – it is always best to keep the registers up to date (in the case of companies, it is a legal requirement).

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If you or your Trustees would like to discuss the issues raised by this note and the potential issues in your charity, please contact:

Jo Coleman, partner, iBB solicitors Charities team01895 207809 jo.coleman@ibblaw.co.uk

this BriefinG note is onLY intended to proVide GeneraL GuidanCe and is not intended to Constitute LeGaL adViCe.

© 2013

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