Trustees avoiding liability

1. Trustees avoiding liability

2. Contents
•Introduction
•Trustee Legal Duties
•Reducing the risk of personal liability
•Trustee decision making
•Case studies

3. • Ensure your charity is carrying out its purposes for the public benefit
• Comply with your charity’s governing document and the law
• Act in your charity’s best interests
• Manage your resources responsibly
• Act with reasonable care and skill
• Ensure your charity is accountable
Trustees legal duties

4. Liability arises when trustees breach their legal duties and are held
responsible for the consequences of that breach (e.g.) financial loss
Personal liability is very rare but it is possible for charity trustees to be held
personally liable:-
•to their Charity – for a financial loss caused by them acting improperly.
•to a third party that has a legal claim against the charity that the charity
cannot meet (e.g.) breach of employment terms, failure to pay for
goods and services.
When can trustee liability
arise?

5. To reduce the risk of personal liability, trustees should:-
•ensure that you understand your responsibilities
•ensure the charity can meet its financial obligations, particularly before
agreeing any contract or substantial borrowing
•ensure that the charity has effective management and financial controls
•ensure that the charity complies with other laws that apply to it
•consider whether the charity needs additional insurance or needs to
become incorporated
•hold regular meetings and keeps proper records of decisions made and
the reasons for those decisions
Reducing the risk of
personal liability

6. Legal requirement: principles the courts have developed for reviewing
decisions made by trustees. Trustees must:
•act within their powers (law and governing document)
•act in good faith and in the interests of the charity
•make sure they are sufficiently informed (independent advice?)
•take account of all relevant factors (ignore irrelevant factors)
•manage any conflicts of interest
•make decisions that a reasonable trustee body could make
Trustee decision making

7. Key points
• Some decisions don’t work out as intended.
• Neither the courts nor the Commission could judge whether the
decision itself was right or wrong if :-
a. the trustees had power to make it and;
b. it was within the range of decisions that a reasonable body of
trustees could have made.
• The courts would not hold trustees personally liable for a breach
of duty if they acted honestly and reasonably.
• Guidance is available on: www.gov.uk/charitycommission
“it’s your decision: charity trustees and decision making”