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Insights // 20 July 2018

Preparing for the New Charity Automatic Disqualification Rules

Partner Nick Burrows, head of our Charities & Education team, explains the amendments to the rules which will see the introduction of new legal reasons for disqualification, and will now also extend to those individuals in senior management roles, not just to trustees.

With new rules regarding automatic disqualification coming into effect from 1 August 2018, charities should take time to consider and understand the implications of the changes being made as part of the Charities (Protection and Social Investment) Act 2016.

The current automatic disqualification framework is aimed to protect charities from being run by individuals who have specific unspent convictions, or meet certain criteria making them unsuitable for a trustee role of a charity.

Current automatic disqualification rules

Under the current rules, an individual will be disqualified from acting as a trustee of a charity if they have unspent convictions, or if certain disqualifying reasons apply to them, mainly relating to bankruptcy. For more details about the disqualifying reasons click here.

Charities must remain vigilant and be aware of whether their trustees are disqualified, and should have systems in place to identify trustees who become disqualified after they have been duly appointed. Trustees who are disqualified must not be appointed, even on an interim basis, as it will ordinarily be an offence for a person to act as a charity trustee whilst they remain disqualified.

New automatic disqualification rules

From 1 August 2018 new criteria for disqualification will be introduced including unspent convictions relating to terrorism, money laundering, and being listed on the sex offenders register. Importantly to note for charities, is that the new disqualification rules will also prevent individuals from holding certain ‘senior managerial positions’ within the charity.

‘Senior managerial positions’ will include anyone who has overall management and control of the charity’s finance and is accountable to the Chief Executive or board of trustees (this will typically be the Chief Finance Officer or equivalent), or carries overall responsibility for the day-to-day management of the charity, and is accountable to the charity trustees (Chief Executive or equivalent).

Those individuals currently in senior management roles who would become disqualified once the new rules come into force will not be able to continue their roles with their respective charity, unless they obtain a waiver, which is explained in more detail below.

How to prepare

Charities should be mindful of the incoming rules, and must consider whether, particularly if currently in the process of recruiting for a trustee or senior manager, the candidate will be automatically disqualified post-1 August 2018 and similarly if any current trustees or senior managers of the charity will become disqualified under the new rules. An internal review of your pre-appointment checks and recruitment systems should be conducted to ensure that they reflect the changes.

While charities should already have signed declarations from their trustees, with the incoming changes to the disqualifying criteria, it would be wise to obtain fresh declarations from both prospective senior managers or trustees, and current individuals already in these roles with the charity, to confirm they are not disqualified.

In addition to obtaining signed declarations, charities may also want to check relevant official registers (Insolvency Register, Register of Removed Trustees, Disqualified Directors Register etc.) which could otherwise confirm whether an individual would be automatically disqualified under the new rules.

In the event staff in a senior management position will be disqualified and have to resign formally from their role, charities may need to take specialist employment legal advice in respect of the staff member’s contract of employment to determine how the disqualification could affect the relevant individual’s employment rights.

Waivers

It is, however, not all doom and gloom for those individuals who may be disqualified either under the current or new rules as mentioned above. A waiver, properly obtained from the Charity Commission, can bring an individual’s disqualification to an end, and will mean that the individual may take up trustee and senior management roles at a charity, or charities, covered by the waiver.

An individual may apply for a waiver at any time after disqualification, and for those individual who are not disqualified under the current rules, but will be following the introduction of the new rules, they are able to apply in advance prior to 1 August 2018. It is particularly important for the latter individuals to submit the application before this date as their waiver from disqualification under the new rules will not take effect until they have received a formal decision from the Charity Commission.

The Charity Commission will consider each application based on its own merits, and will typically grant waivers where it is in the best interests of the charity to give the waiver, and is not likely to damage the public trust and confidence in the charity, or charities. Charities are, as part of any waiver application, permitted to decide whether or not to support the application for that individual.

Comment

Charities should be updating relevant internal processes and systems, and reviewing prospective appointments of trustees and senior managers, including individuals currently in those posts, in order to identity whether any of them will be subject to disqualification under the new rules, and if any waiver applications need to be made. The earlier any applications are made to the Charity Commission the better, as this will provide you with clarity over how your charity may be affected by the new rules.

For further information or legal advice, please contact law@blandy.co.uk or call 0118 951 6800. 

This article is intended for the use of clients and other interested parties. The information contained in it is believed to be correct at the date of publication, but it is necessarily of a brief and general nature and should not be relied upon as a substitute for specific professional advice.

Nick Burrows

Nick Burrows

Chairman & Partner, Charity & Commercial Law

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