Arrivals and departures
October 2009
What if your charity needs to remove a trustee? Moira Protani looks at the legal position surrounding changes in board dramatis personae
A key aspect of good charity governance is a board of trustees who are constituted properly. The rationale for the appointment or retirement of trustees and the process by which it is achieved is usually straightforward. Removing a trustee from office is usually controversial and it is important to get it right.
Why change?
The reasons for changing trustees are usually because:
- a trustee’s term of office as set out in the governing document has come to an end and a vacancy arises either because that trustee is not eligible for re-appointment, or because that trustee does not wish to serve a further term;
- a trustee wishes to retire;
- a trustee has a conflict of interests which prevents him/her from taking decisions on particular matters thereby necessitating the appointment of an additional trustee so that a quorate meeting can be held;
- a trustee is disqualified from being a trustee for any of the reasons specified in s.72 Charities Act 1993;
- a trustee is removed from office by a third party who is entitled to do so, sometimes for whimsical reasons or because the trustee is responsible for maladministration or disrupting the charity’s affairs;
- a trustee is removed from office by the members of the charity;
- because of poor governance practices or a badly drafted governing document it is unclear who is, and who is not, a trustee;
- there are not enough trustees or there are too many trustees and, for one reason or another, steps are taken to alter the number of trustees; or
- the skill base of the trustees is inadequate to meet the needs of the charity but the governing document requires a third party with a limited interest base to appoint the trustees.
Who can effect change?
The starting point is always the charity’s governing document. Powers to appoint and remove trustees are commonly given to the founder, to members of a charity and to third parties such as local authorities and bodies with a special interest in the aims of a charity. Persons can sometimes automatically become a trustee under the governing document on being appointed to a particular post, e.g., the local vicar or the president of a named organisation.
Trustees and members sometimes have the power to appoint trustees.
The Charity Commission has statutory powers of appointment and removal of trustees. A trustee is usually free to retire as long as the minimum number of trustees required by the governing document remains in office. The last surviving trustee cannot retire. On the death of the last surviving trustee of an unincorporated charitable trust, the role of trustee devolves on his/her personal representatives. An executor may not welcome this news. The Charity Commission can also appoint trustees to fill a void – as a judge once said: ‘a trust will not fail for want of a trustee’.
How is change effected?
The procedural aspects are often straightforward and it is important to observe the terms in the governing document. Failure to do so can result in a body being improperly constituted and this can call into question the validity of the appointment of a trustee and the decisions subsequently taken. Those who have not been properly appointed but who have taken decisions for the charity can find themselves without the usual protections given to a properly appointed trustee, such as an indemnity out of charitable funds to meet liabilities incurred. This personal liability could come as a very unwelcome and expensive surprise.
Governing documents differ not just in terms of legal structure but also as regards the degree of formality required to effect changes. Common legal forms are the company limited by guarantee and the trust deed. Less common legal forms are an unincorporated association with written rules, a Royal Charter body, a statutory body (e.g., RSPCA), an industrial and provident society and (soon) the Charitable Incorporated Organisation (CIO). If trustee appointment, retirement and removal procedures need to be clarified, the governing documents should be amended. The procedures for doing this vary depending upon the legal structure adopted. Professional advice should be sought – homespun amendments rarely work!
Appointment and removal procedures under governing documents range from an informal written notice of appointment or removal served on the charity by a third party on the one hand to a full blown election procedure (which may be conducted by post, in electronic form or at a members’ meeting). In between those methods, there might be an election procedure conducted by the trustees. Older trust deeds may not contain express powers of appointment and removal of trustees and the Trustee Act 1925 contains limited default powers. This includes power in certain circumstances to remove a trustee where he/she is unable or unwilling to act as a trustee, for example by reason of mental incapacity.
The members of a charitable company have the power to appoint and remove trustees in accordance with the articles of association and the Companies Act 2006. If the trustees are not appointed properly in accordance with the articles and the trustees are empowered to admit members, any decisions taken by those individuals on the appointment of members would be capable of challenge. The result can be administrative chaos if those members then vote to appoint trustees because the members’ status would also be capable of challenge! It does happen. The Charities Act 2006 introduced a new power for the Charity Commission to cure this problem. The Charity Commission can determine who the members of a charity are in these circumstances. Having done this, the members of a charity can, using the procedures in the governing document, vote to appoint, remove or confirm the position of those acting as trustees.
A charity can’t rely upon the Commission to use this power as a means of maintaining proper governance procedures! It is essential for a charity to keep proper membership records. Membership disputes are commonplace and generally arise out of a failure to keep clear records demonstrating the entitlement of a person to vote on the appointment of trustees. A charity can incur significant costs in unravelling administrative messes of this type.
Where a trustee is being removed from office forcibly by his co-trustees professional advice should be sought. This is to ensure that the process is conducted properly and that the repercussions will not result in unnecessary legal costs or a formal inquiry by the Charity Commission. A person exercising a power to remove a trustee will usually have a duty to act in the best interests of the charity. Having a personal dislike of a trustee is not a good enough reason to exercise a power to remove that trustee from office or where the trustee takes decisions that the person doesn’t agree with. A better reason is where the trustee’s actions or inactions are having a detrimental effect on the proper administration of the charity.
Statutory powers of the Charity Commission to appoint and remove trustees
The Charity Commission has statutory powers to appoint and remove trustees. Trustee appointments by the Charity Commission are not always controversial. Where the governing document of a charity is unclear about trustee appointments the Commission can enable the charity to overcome procedural difficulties and appoint trustees – sometimes in the context of a scheme which also has the effect of altering the governing documents of the charity in order to provide clarity for the future.
If the Commission is satisfied that there has been:
1) misconduct or mismanagement; or
2) that it is necessary or desirable to act to protect the charity’s property;
the Commission can appoint trustees and suspend trustees. However, in order to remove a trustee permanently from office the Commission must be satisfied that there has been:
1) misconduct or mismanagement; and
2) that it is necessary or desirable to act to protect the charity’s property.
The reader will note that the Commission must be satisfied on both counts before it can remove a trustee from office. None of the Commission’s powers to remove or suspend trustees under s. 18 are exercisable unless the Commission has already opened a formal inquiry under s. 8 of the Charities Act 1993.
Prior to the enactment of the Charities Act 2006 the Charity Commission could remove a trustee from office under S18. However, the Commission did not have the power to remove members of a charity which could include a trustee who had been removed from office by the Charity Commission for maladministration. Members have the power to appoint trustees. This meant that a trustee who had been removed could, in his capacity as a member, appoint others as trustees who might have a similar outlook to the trustee who had been removed. This loophole has been removed by the Charities Act 2006 and where a trustee has been removed by the Charity Commission the Commission can also terminate the trustee’s membership and prohibit him/her from resuming membership without the Commission’s consent.
Author: Moira Protani
Moira Protani joined Wilsons in September 2008, is head of the charities department and is based in the firm’s London office. She is an expert in charity law as it affects charities, trustees, donors, businesses and public sector bodies which engage with charities.
She advises on the establishment of charities, trustee powers and duties, schemes, taxation, grant-making, fundraising, mergers, disposal of land and buildings, dealing with the Charity Commission, constitutional and good governance issues.
www.wilsonslaw.com
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