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    • stoozie1
    • By stoozie1 16th Jul 17, 4:15 PM
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    stoozie1
    Liabilities of charity trustees, and how trustees are determined
    • #1
    • 16th Jul 17, 4:15 PM
    Liabilities of charity trustees, and how trustees are determined 16th Jul 17 at 4:15 PM
    Hi,

    I have been reading around these issues for around 18 months, so I do understand a bit of the law, but I need further clarity.

    I understand that in the event of the dissolution of an UNincorporated charity, all debts outstanding after dissolution would fall jointly and severally to the trustees.

    Could someone explain what happens to the debts in the case of an incorporated charity?

    In the event that a debt falls to a trustee, I understand that it is not necessarily who is on paper the trustee, but anyone acting as a trustee/manager/director. I need to understand what tests would be applied to determine whether a volunteer who had not signed up as a trustee was a trustee for the purposes of establishing their liability for debts.

    Thank you for any help or support.
Page 1
    • 00ec25
    • By 00ec25 16th Jul 17, 4:41 PM
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    00ec25
    • #2
    • 16th Jul 17, 4:41 PM
    • #2
    • 16th Jul 17, 4:41 PM
    take proper legal advice or ask the Charity Commission, after all they are the regulators who will "do" you
    • Savvy_Sue
    • By Savvy_Sue 16th Jul 17, 4:52 PM
    • 37,825 Posts
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    Savvy_Sue
    • #3
    • 16th Jul 17, 4:52 PM
    • #3
    • 16th Jul 17, 4:52 PM
    I am not an expert, and if you have a question about a specific situation I'd strongly recommend proper legal advice (the kind you pay for), but ...
    I understand that in the event of the dissolution of an UNincorporated charity, all debts outstanding after dissolution would fall jointly and severally to the trustees.

    Could someone explain what happens to the debts in the case of an incorporated charity?
    Originally posted by stoozie1
    With the qualification that there are now other options, I can tell you that if the charity has also been set up as a limited company, then there will be a governing document which sets out what happens if the charity ceases to exist. In the case of the one I work for, we have a membership as well as trustees / directors, and the members are liable to contribute £1 in the event that we're wound up. All the trustees / directors are also members.

    I believe - but am not certain - that the protection offered by a limited company only applies as long as the directors have not acted fraudulently or dishonestly.

    And I am not sure of the arrangements with the 'new' options like CIO, CIC etc.

    In the event that a debt falls to a trustee, I understand that it is not necessarily who is on paper the trustee, but anyone acting as a trustee/manager/director. I need to understand what tests would be applied to determine whether a volunteer who had not signed up as a trustee was a trustee for the purposes of establishing their liability for debts.
    Originally posted by stoozie1
    I'm wondering where you're getting this understanding from? And what sort of situation you're envisaging?

    For example, we were looking at a contract at work a while ago. We wanted to terminate it early, and I pointed out that it had not been signed by a manager, but by someone at my level - which should not have happened. My manager didn't want to use this in negotiations with the company, because they said if we terminated for that reason, the company could go after the individual for payment of the balance.
    Still knitting!
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    • stoozie1
    • By stoozie1 16th Jul 17, 5:11 PM
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    stoozie1
    • #4
    • 16th Jul 17, 5:11 PM
    • #4
    • 16th Jul 17, 5:11 PM
    Its on the charity commission website but frustratingly I can't find it now!

    It also says that for an INcorporated charity, the debts/losses would be met from the charity's corporate assets, but the situations I am envisaging wouldn't be covered by the assets. (The charity's assets are very small).
    • stoozie1
    • By stoozie1 16th Jul 17, 5:17 PM
    • 370 Posts
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    stoozie1
    • #5
    • 16th Jul 17, 5:17 PM
    • #5
    • 16th Jul 17, 5:17 PM
    this link says the same thing though: https://knowhownonprofit.org/leadership/governance/getting-started-in-governance/trustees
    • stoozie1
    • By stoozie1 16th Jul 17, 5:19 PM
    • 370 Posts
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    stoozie1
    • #6
    • 16th Jul 17, 5:19 PM
    • #6
    • 16th Jul 17, 5:19 PM
    re: previous points, unfortunately no, the Charities Commission said they were unable to advise.

    Yes I could pay for legal advice. I am not working at the moment though (I have 4 small children) so am trying to avoid large costs if I can avoid them.
    • stoozie1
    • By stoozie1 16th Jul 17, 5:32 PM
    • 370 Posts
    • 217 Thanks
    stoozie1
    • #7
    • 16th Jul 17, 5:32 PM
    • #7
    • 16th Jul 17, 5:32 PM
    I can tell you that if the charity has also been set up as a limited company, then there will be a governing document which sets out what happens if the charity ceases to exist. In the case of the one I work for, we have a membership as well as trustees / directors, and the members are liable to contribute £1 in the event that we're wound up. All the trustees / directors are also members.
    Originally posted by Savvy_Sue
    but in the event of being wound up, who then pays the company's debts if not the directors/trustees?
    • Owain Moneysaver
    • By Owain Moneysaver 16th Jul 17, 6:50 PM
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    Owain Moneysaver
    • #8
    • 16th Jul 17, 6:50 PM
    • #8
    • 16th Jul 17, 6:50 PM
    but in the event of being wound up, who then pays the company's debts if not the directors/trustees?
    Originally posted by stoozie1
    No-one. That's the point of a limited company. It means the liability of members (shareholders, members, whatever) is limited to the value of the shareholding or guarantee.
    A kind word lasts a minute, a skelped erse is sair for a day.
    • stoozie1
    • By stoozie1 16th Jul 17, 8:58 PM
    • 370 Posts
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    stoozie1
    • #9
    • 16th Jul 17, 8:58 PM
    • #9
    • 16th Jul 17, 8:58 PM
    So employees made redundant and with a notice period just walk away with nothing, or someone who sued the business for 120k damages, likewise?

    I'm not disagreeing, I just genuinely don't understand and am worried.
    • 00ec25
    • By 00ec25 16th Jul 17, 10:51 PM
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    00ec25
    So employees made redundant and with a notice period just walk away with nothing, or someone who sued the business for 120k damages, likewise?

    I'm not disagreeing, I just genuinely don't understand and am worried.
    Originally posted by stoozie1
    can we be clear

    unincorporated means it is not established as a limited company. that was your original question. In that case the trustees are liable

    if the charity is incorporated as a "company limited by guarantee" that means it is a company! A company can be founded with "charitable purposes" and therefore be "not for profit", ie cannot pay money out to anyone other than those for whom its charitable purposes say it will financially support. If the company wishes to attain full blown registered charity status with the charity Commission then that too is possible but obviously more onerous.

    For a company limited by guarantee, its members are obliged to contribute the amount guaranteed in the event of the company's liquidation. Typically that is either £1 or £5 depending on the memorandum and articles of association of the company when it was formed.
    • stoozie1
    • By stoozie1 16th Jul 17, 11:22 PM
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    stoozie1
    Thanks. I was referring to the case of an incorporated charity which I understood had a status of limitation similar to a limited company.
    • stoozie1
    • By stoozie1 16th Jul 17, 11:27 PM
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    stoozie1
    Sorry my phone posted too early, in an incorporated charity, after the members have paid their £1, where does the redundancy or damages bill get paid from?
    • 00ec25
    • By 00ec25 17th Jul 17, 12:50 AM
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    00ec25
    Sorry my phone posted too early, in an incorporated charity, after the members have paid their £1, where does the redundancy or damages bill get paid from?
    Originally posted by stoozie1
    the same place as any incorporated body - from the assets of the body. If there are insufficient assets then company law says unpaid staff wages have no higher claim to whatever cash is left than any other creditor, there may not be enough to cover everything. In that case some will be losers.


    https://www.gov.uk/guidance/charity-types-how-to-choose-a-structure

    If a charity structure is a corporate body, generally its trustees aren’t personally liable for what it does.

    If your charity isn’t a corporate body (‘unincorporated’):
    - the trustees are personally liable for what it does
    - it won’t be able to enter into contracts or control some investments in its own name
    - two or more trustees, a corporate custodian trustee or the charities’ land holding service will have to ‘hold’ any land on your charity’s behalf
    Last edited by 00ec25; 17-07-2017 at 12:53 AM.
    • stoozie1
    • By stoozie1 17th Jul 17, 2:07 AM
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    stoozie1
    So if someone is awarded a large sum in damages against a charity (CIO) they don't get paid either?
    • Aquamania
    • By Aquamania 17th Jul 17, 10:05 AM
    • 1,944 Posts
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    Aquamania
    So if someone is awarded a large sum in damages against a charity (CIO) they don't get paid either?
    Originally posted by stoozie1
    As already explained for any company that enjoys limited liability, on the winding up that company, any creditors will be paid whatever is left from the liquidation of assets.

    There is no magic money tree.

    Usually creditors are paid in proportion to the amount owed, but it can be more complicated as some creditors may be classed as preferential creditors.
    Last edited by Aquamania; 17-07-2017 at 10:07 AM.
    • stoozie1
    • By stoozie1 17th Jul 17, 11:23 AM
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    stoozie1
    many thanks. If anyone has any official links supporting this, I would be most reassured.

    Can I re-raise my other question in the OP about how someone would be defined as a director/trustee, without signing anything to say that. How would the 'performing the role' test be applied?
    • 00ec25
    • By 00ec25 17th Jul 17, 1:14 PM
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    00ec25
    many thanks. If anyone has any official links supporting this, I would be most reassured.
    Originally posted by stoozie1
    there are countless links covering the bankruptcy/liquidation/winding up of a company - use google. Here's one at random
    https://www.gov.uk/wind-up-a-company-that-owes-you-money/overview
    take note of the big ! mark comment
    Can I re-raise my other question in the OP about how someone would be defined as a director/trustee, without signing anything to say that. How would the 'performing the role' test be applied?
    Originally posted by stoozie1
    it is explained in the link you yourself posted at #5
    perhaps it would be wiser if you did not take on a trustee role?

    see also
    https://www.gov.uk/government/publications/the-essential-trustee-what-you-need-to-know-cc3
    • martindow
    • By martindow 17th Jul 17, 1:41 PM
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    martindow

    There is no magic money tree.
    Originally posted by Aquamania
    No, a viable company needs to be strong and stable.
    • stoozie1
    • By stoozie1 17th Jul 17, 1:51 PM
    • 370 Posts
    • 217 Thanks
    stoozie1
    there are countless links covering the bankruptcy/liquidation/winding up of a company - use google. Here's one at random
    https://www.gov.uk/wind-up-a-company-that-owes-you-money/overview
    take note of the big ! mark comment
    it is explained in the link you yourself posted at #5
    Originally posted by 00ec25
    I have been reading similar for over a year, but I can't see 100% that the trustees are not liable.
    perhaps it would be wiser if you did not take on a trustee role?

    see also
    https://www.gov.uk/government/publications/the-essential-trustee-what-you-need-to-know-cc3
    Originally posted by 00ec25
    I don't feel that I have, and I feel I can evidence that I have not, but some of the volunteer jobs I have been doing for the charity could possibly be made to seem that I have if a court/whoever needed someone to call that in the unfortunate event.
    • Savvy_Sue
    • By Savvy_Sue 17th Jul 17, 9:14 PM
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    Savvy_Sue
    I admit I only skimmed that page, but I can't see it saying what you seem to think it says. The sentence which leapt out at me was
    Trustees are the only people entitled to make decisions at a board meeting.
    Have you been involved in voting at board meetings? Making decisions? Not just presenting options, but making decisions? the whole 'role of trustees' section seems to me to make it clear.
    Still knitting!
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    Current projects: 1 shawl, another seaman's hat
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