CHARITIES REMINDER: Automatic disqualification - the rules change on 1 August 2018
Charities should have systems in place to check whether any of their trustees or senior managers will now be disqualified.
What is changing?
There are two key changes:
- An increase in the number of legal reasons for disqualification; and
- Individuals who are disqualified from acting as a trustee will also be disqualified from holding certain relevant senior management positions in a charity.
There are already some legal restrictions on who can act as a charity trustee, for example undischarged bankruptcy, unspent convictions for dishonesty and deception, or an order relating to misconduct or mismanagement of a charity. From 1 August, the reasons for disqualification will include certain unspent convictions such as for terror offences, Bribery Act offences, money laundering offences, and being on the sex offenders register. The Charity Commission has produced a useful table of reasons for disqualification.
It will still normally be the case that:
- it is a criminal offence to act while disqualified; and
- a disqualified person has the right to apply to the Commission for a waiver of their disqualification.
What is meant by senior manager?
Senior manager will include Chief Executive and Chief Financial Officer. However, the definition in the new rules is wider, emphasising not the title but the function. So anyone who reports directly to trustees, or is responsible for reporting financial matters to the CEO, CFO or directly to the trustees is likely to fall within the definition. See more details in the Commission's guidance for charities https://www.gov.uk/guidance/automatic-disqualification-rule-changes-guidance-for-charities.
What action should charities be taking?
- Check which posts are likely to qualify as senior manager positions under the new rules, and whether the current holders will become disqualified by the new rules.
- Bring the new rules to the attention of your trustees.
- Identify if anyone who will be disqualified from 1 August 2018 wishes to apply for a waiver from the Commission.
- Update your current pre-appointment procedures to make sure individuals are not disqualified, e.g by asking prospective trustees and senior managers to sign a declaration form. The Commission has published model declarations for trustees and senior managers which can be downloaded from its guidance on the changes.
- The declaration must be received before an appointment is made.
- Identify which official registers can be checked by the charity to identify any disqualification, eg The Individual Insolvency Register, maintained by the Insolvency Service, the register of disqualified directors, maintained by Companies House, and the register of all persons who have been removed as a charity trustee either by the Commission or by an Order of the High Court since 1 February 1993.
- Check and update your procedures for individuals currently in post. It is good practice to check, at reasonable intervals, that an individual has not become disqualified in the period since they were appointed by obtaining a fresh declaration.
- An individual cannot continue to act when a disqualification takes effect unless they are given a waiver by the Commission.
What if our updated procedures reveal that a current trustee or senior manager will or has become disqualified from 1 August 2018 under the new rules?
Trustees should formally resign with immediate effect.
Those identified as senior managers must not continue to act in their current positions. The charity will need to establish with an employee whether or not they can continue in employment in an alternative role, or whether their employment will be terminated. Charities should take employment law advice before starting this process.
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