Disqualification and Disaster – Charity Mismanagement and Why You Don’t Want to Get Caught

In the UK, trustees oversee the management of a charity, ensuring it operates effectively and aligns with its objectives. Breaching these duties can have serious consequences and repercussions, as seen in recent cases involving high profile individuals.

A well-known entrepreneur and her husband were disqualified from being charity trustees amid an investigation into a foundation set up in her father’s name to raise money for organisations supporting the elderly.

On the other hand, a fashion model admitted to failing in her role as a trustee for a charity that raised funds for environmental and humanitarian causes and received a five-year ban from charity involvement. Fellow trustees were banned for nine and four years, respectively. A report found them guilty of severe misconduct and financial mismanagement.

What are the legal duties of trustees?

Trustees are expected to adhere to several key legal duties, some of these include:

• Duty of Compliance: ensuring the charity complies with its governing document and all relevant laws and regulations.
• Duty of Care: acting with reasonable care and skill, using personal knowledge and experience to ensure the charity is well-run and efficient.
• Duty of Prudence: managing the charity’s resources responsibly and ensuring that funds are used only for its charitable purposes.

Consequences of breaching duties

When a breach of duties is suspected, the Charity Commission may launch an investigation. Consequences of breaches of duties arising from these investigations can include suspension or removal of trustees and criminal prosecution.

The investigation into the environmental and humanitarian charity revealed significant financial mismanagement. Despite raising nearly £4.8 million, only 10% was granted to partner charities, with much spent on luxury expenses for the fashion model. It also identified unauthorised payments totalling £290,000 to another trustee, later approved by the fashion model. The fellow trustee repaid the money following the Commission’s intervention and was banned for nine years. The enquiry into the charity setup to support the elderly stated that the well-known entrepreneur cannot be a trustee or hold a senior management role in any charity in England and Wales for 10 years, nor her husband, for eight years.

Protecting Charities and Public Trust

The Charity Commission’s role is to ensure that charities remain effective and retain public trust. When trustees breach their duties, especially in severe cases involving misconduct or mismanagement, decisive action is taken to protect the charity’s assets and reputation and to maintain public confidence in the charitable sector.

Preventing Breaches

Trustees should ensure they understand their legal duties and responsibilities and stay up-to-date with any changes with regular training and consult professional advisors when in doubt. Trustees of a Charity should ensure they implement robust policies.

By adhering to their legal duties diligently, trustees can help their charities thrive and maintain the trust and support of their beneficiaries and the public. By adhering to these principles, trustees can help their charities succeed and maintain public trust.

How can JTC help?

By partnering with JTC, trustees can confidently navigate their legal duties and focus their day-to-day activities. Our support ensures that trustees not only meet regulatory expectations but also maintains the trust and support of your clients and the public.

With a focus on professionalism, integrity and independence, JTC provides a broad range of global corporate clients with a tailored outsourced company secretarial service which includes assisting trust companies and their trustees with their obligations and duties.

JTC’s global presence and deep understanding provides a wide range of high quality corporate secretarial services relevant and customised to your specific requirements.

If you would like to find out more about how JTC’s full suite of company secretarial services can help your business, or if you require any specific requirements tailored to suit your needs, please contact Michelle O’Flaherty.