The Charities Act 2022, explained: trustee matters

The latest in our blog series, untangling the Act to pull out the key points your charity will need to know, action now and plan for.

We examine how the Act could make life easier for trustees dealing with defective trustee appointments; seeking remuneration for providing goods to charity or payment for work already done where payment was not authorised; as well as reducing red tape for corporate trustees needing trust corporation status.

What do you need to know?

The Charities Act 2022 includes a number of changes which are designed to reduce red tape for trustees dealing with knotty issues relating to trusteeship.

Under new rules which came into force on 31 October 2022:

1. Charity trustees have a new stand-alone power to pay trustees for goods, as well as services

A central tenet of charity law is that trustees cannot financially benefit from their trusteeship, except in limited circumstances – which include where the benefits are permitted by law (including if they are authorised by the Charity Commission), or by the charity’s governing document.

The Charities Act 2011 contains a provision which allows a charity to pay one or more of its trustees, or a person connected to the trustee such as a spouse, for providing services to that charity if certain conditions are met. but prior to 31 October 2022 it only allowed trustees or connected persons to provide goods if they were also supplying services. So a charity could use the power to pay a single trustee for painting their office, and supplying the paint at the same time, but could not (using this power) pay a trustee just to supply the paint.

The Act has removed this irregularity by allowing trustees and connected persons to be paid for providing goods and/or services, so long as the statutory conditions are met.

2. Rules about “trust corporation status” of corporate trustees are simplified, reducing bureaucracy for some charities

From time to time, it is necessary for a sole corporate trustee of a charity to obtain what is known as “trust corporation status”. This can be the case, for example, when a charity incorporates, and the new corporate charity is appointed as the sole trustee of the old charitable trust. The old charitable trust is retained, for example, to receive future legacies or hold endowment.

Trust corporation status can be needed so that among other things:

• The former individual trustees of the charitable trust can retire and be properly discharged on their replacement by the corporate trustee; and
• The corporate trustee can properly deal with any land owned by the charitable trust – and give a valid receipt to a buyer.

Prior to 31 October 2022, trust corporation status was usually obtained by applying to the Charity Commission to appoint the corporate trustee by scheme or by applying to the Ministry of Justice for trust corporation status, but the process is disproportionate and can be time-intensive.

From 31 October 2022 the Charities Act has swept much of this away where the corporate trustee is a charity, granting automatic trust corporation status to any company (or other corporation) which is (i) a charity; and also (ii) the trustee of a charitable trust.

This is expected to reduce bureaucracy, and simplify a lot of charity restructuring processes. However, the new power is limited as the old rules will still apply to corporate trustees that are not charities. For example, where an unincorporated charity has a non-charitable company as a trustee, this company will still need to apply for trust corporation status.

Further changes are expected sometime in March 2024:

3. The Charity Commission will get a new power to remedy defective trustee appointments

It is quite common for a charity to inadvertently fail to appoint its trustees correctly. For example, a membership charity may fail to fully comply with its internal rules, rendering an election process and the subsequent appointment of trustees, invalid. Or the trustees of a charitable trust may try to appoint a new trustee by resolution, when actually the trust requires a deed.

An invalid appointment can have wide ramifications for the validity of the charity’s business – particularly if the charity is unincorporated (the law provides some limited assistance where the charity is structured as a company). The problem can also compound over time, because often trustees appoint their own successors. If the initial trustees aren’t validly in post, they may not be able to validly appoint their successors (who could then not appoint their successors, and so on).

While the Charity Commission currently has some powers to address uncertainties in relation to the identity of trustees, the Act will give the Charity Commission a new broad power to fix problems with trustee appointments and elections, by making an order to “confirm” the trustee’s appointment or election. Helpfully, the power will also enable the Charity Commission to vest property and to confirm the validity of acts done by the trustee concerned before the order was made.

It remains to be seen how much, if at all, the Commission will use this power. The Commission already has a statutory power to determine who are the members of a charity, and has not used it, as far as we are aware. Resource constraints mean that, as a matter of policy, the Commission expects charity trustees to fix problems themselves where they can (so using the examples above, it could ask them to re-run an election or execute a deed) and only assists where this is not possible. Alternatively, the Commission may help in other ways: for example it can make an order to help with the conduct of a contested election.

This new power is expected to come into force sometime in March 2024.

4. The Charity Commission will get a new power to authorise trustees to be paid for work already carried out

The Charity Commission will also get a new power to authorise a trustee to retain a benefit which they have already received for work done for the charity; or to order a charity to pay a trustee for work already done which was not a permitted benefit i.e. where such payment was not authorised but it would be inequitable for the trustee not to be remunerated, subject to certain considerations. This will remove the need to apply to court in this situation.

This change is expected to be introduced sometime in March 2024.

What action should you take now?

You should check your governing documents to ensure that your trustees have been properly appointed (for example, any bye-laws or formalities e.g. a deed have been complied with). If they have not, you should seek legal advice to help rectify the position. It is possible that the new Charities Act power could assist, when it becomes available, but you should not wait for it to rectify irregular appointments and you may be able to seek assistance from the Charity Commission under its current powers.

The Charities Act, which came out of Lord Hodgson’s review of the Charities Act 2006 back in 2012 and the Law Commission’s report on Technical Issues in Charity Law in 2017, is intended to make life easier for charities by reducing regulation and clarifying grey areas in the law. In this new blog series, we untangle the new Act to pull out the key points your charity will need to know, action now and plan for. Catch up with all the blogs in the series here.

If you have questions on this or any aspect of the Act, or how it might affect your charity’s plans, please get in touch with Mark Abbott or Laura Soley. We’ll be happy to help.