On 1 August 2018 the rules about automatic disqualification for trustees changed. More reasons that disqualify an individual from acting as a trustee have been added – and the new rules also apply to some senior manager positions within charities.
Many co-ops have not been affected by the new rules. However, if your co-op is either a registered charity, a charitable community benefit society, or a co-op that has a charitable subsidiary then it is important to understand these changes.
Understanding the changes
Currently, the range of disqualifying reasons is quite narrow – mainly relating to bankruptcy, unspent convictions for crimes involving dishonesty or deception. The new rules increase the number of legal reasons that disqualify an individual from acting as a trustee, including being on the sex offenders register, and certain unspent convictions (such as for terrorism or money laundering). The new rules also mean those disqualified from acting as a trustee are also disqualified from holding certain senior manager positions at a charity (including chief executive and chief finance officer roles).
How to respond to the new rules
1. Trustees and senior managers currently in post
Now is a good time to check trustee declarations meet the requirements of the new automatic disqualification rules. Consider if your charity needs to adopt a declaration for senior managers to sign. Sample declarations are available to download from the Charity Commission's website.
If a person is disqualified by the new rules then they must not act to continue in their position and should resign formally. It is important for the charity to consider how any resignations will affect the governance of the charity, for example, will the minimum number of trustees required by the charity's constitution still be met, if not what can be done to rectify this? Is co-opting an option?
Charities should take legal advice if a senior manager becomes disqualified to ensure that employment law is followed.
Your charity's board may consider supporting a waiver application so that a disqualified person can continue in their role as a trustee or senior manager. The commission has produced guidance on waivers but any board must consider a range of factors before agreeing to support a waiver to ensure that they discharge their duty of care correctly. These factors include: whether a majority of trustees support the application; if the applicant the best person for the role; and what risks the charity is exposed (both financial and reputational).
2. Recruiting new trustees and senior managers
Charities should check that systems are in place before appointment to ensure that prospective trustees and senior managers are not disqualified. Key measures to take are:
- During the recruitment process asking prospective trustees and senior managers to make declarations that they are fit to act
- Checking the official registers to verify the information provided in the declaration
- Adapting appointment letters to ask trustees to confirm their fitness to act as trustee
- Adopting a proactive periodic review of declarations made so the charity can adequately plan for changes in board composition and senior positions
If your co-operative is affected by the new rules you can also contact us for help and advice.