Liabilities of charity trustees, and how trustees are determined

stoozie1 · 16 July 2017 at 4:15PM

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.

00ec25 · 16 July 2017 at 4:41PM

take proper legal advice or ask the Charity Commission, after all they are the regulators who will "do" you

Savvy_Sue · 16 July 2017 at 4:52PM

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 ...

stoozie1 wrote: »

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?

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.

stoozie1 wrote: »

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.

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.

stoozie1 · 16 July 2017 at 5:11PM

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 · 16 July 2017 at 5:17PM

this link says the same thing though: https://knowhownonprofit.org/leadership/governance/getting-started-in-governance/trustees

stoozie1 · 16 July 2017 at 5:19PM

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 · 16 July 2017 at 5:32PM

Savvy_Sue wrote: »

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.

but in the event of being wound up, who then pays the company's debts if not the directors/trustees?

Owain_Moneysaver · 16 July 2017 at 6:50PM

stoozie1 wrote: »

but in the event of being wound up, who then pays the company's debts if not the directors/trustees?

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.

stoozie1 · 16 July 2017 at 8:58PM

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 · 16 July 2017 at 10:51PM

stoozie1 wrote: »

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.

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 · 16 July 2017 at 11:22PM

Thanks. I was referring to the case of an incorporated charity which I understood had a status of limitation similar to a limited company.

Liabilities of charity trustees, and how trustees are determined

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