With spring well and truly underway and all the Easter egg hunts now at an end, there is no need to go hunting for charities news either – welcome to the bumper edition of the April charities newsletter.
This month, the decision in Aston Risk Management Ltd v Jones provides a useful warning to readers with a group structure of the risk of de facto directors who may owe duties to other companies in the group despite not being formally appointed to their boards. The importance of trustee duties, especially in handling charity finances, has also been re-emphasised in two recent Charity Commission inquiries. Staying with finance, the end of Social Investment Tax Relief (SITR) has been confirmed and charity fundraising is in the spotlight with news from the Fundraising Regulator and charities struggling to fundraise in the cost-of-living crisis.
For those considering a shift towards digital fundraising, the National Cyber Security Centre’s new Cyber Awareness Campaign could be a useful tool. Charity Commission Chair Orlando Fraser KC’s recent speech to the Association of Chief Executives of Voluntary Organisations (ACEVO) covered a number of issues including the role of the regulator in the current financial climate and charities’ use of social media.
De facto directors in group structures
Charities with group structures should take note of a recent court decision about who constitutes a de facto director. In Aston Risk Management Ltd v Jones, a parent company with two directors had a subsidiary (with a separate sole director) but the companies had entered into a shareholders’ agreement which gave the board of the parent company the ability to make significant decisions regarding the subsidiary. The court found that one of the directors of parent (A) was a de facto director of the subsidiary. Even though A was not appointed as a director of the subsidiary they were acting in such a way that they owed duties to the subsidiary as well as to the parent. The decision came about due to A over-reaching their role. They were a dominant figure, presented themselves to others as a director of the subsidiary and made significant decisions without consulting their fellow parent company director – so that the decisions made could not be considered to be those of the parent board acting reasonably under the terms of the shareholders’ agreement.
This case serves as a useful reminder about directors’ duties, the need to be clear as to roles and managing the decision-making process within a group structure. If you want further information about directors’ duties or corporate structures, please get in contact with our charities team.
Charity Commission enquiries into trustee failures
The Charity Commission has published its reports in two inquiries which remind trustees of the importance of fulfilling their duties, particularly when it comes to charity finances.
The Commission’s inquiry into The Macbeth Memorial Trust, an inactive charity, found inadequate accounting practices and a failure to report financial information to the Charity Commission, as well as breaches by the trustees of the administrative requirements in the governing document. The report shows how, even if dormant, a charity’s trustees must continue to comply with their accounting and reporting obligations as well as take appropriate steps to manage its orderly winding-up.
Similarly, the Commission’s inquiry into Rhema Church London emphasises the importance of trustees having proper oversight, particularly of a charity’s finances. Amongst several breaches of trustee duties, the inquiry found that the charity was regularly paying for a senior staff member’s day-to-day personal expenses and trips abroad without clear authorisation or any safe financial procedures and that large sums of money had been transferred between the charity’s accounts and the personal accounts of staff. The Commission also found that the trustees were not meeting as often as the governing document required and that imprecise accounting of the charity’s spending meant that it could not be shown to be charitable expenditure, resulting in a large tax bill for the charity and its eventual closure.
Please feel free to contact our charities team for further advice on governance issues and/or training about the obligations of charity trustees.
News from the Fundraising Regulator
The Fundraising Regulator (FR) has seen increased complaints (up 24% since last November) about fundraising practices. These largely concern misleading information, the behaviour of fundraisers and fundraisers’ attitudes to vulnerable people, which are consistent themes in complaints to the FR. These themes were emphasised in the now-published results of two recent FR investigations, the first into Inside Success Union CIC, a social enterprise that works with 16-24 years olds to create a digital interactive magazine which develops life skills and employment (where there was a concern about undue pressure being placed on members of the public – in particular under 18s) and the second into the charity Leukaemia and Myeloma Research UK and its agent Fundraising Support Ltd (where Fundraising Support Ltd was distributing unwanted charity bags on behalf of the charity). The FR’s recent blog post clarifies how it assesses complaints and what sorts of fundraising may not fall within its remit. There are also upcoming changes to the fundraising levy, a voluntary payment by charities in England, Wales and Northern Ireland with an annual spend of over £100,000 on their fundraising activities. This increase is intended to allow the FR to improve and update its services.
Current pressures on charities – Speech by Orlando Fraser KC, chair of the Charity Commission
The cost-of-living crisis was addressed by Orlando Fraser KC, current Chair of the Charity Commission, in his recent speech to charity and social enterprise leaders at the Association of Chief Executives of Voluntary Organisations (ACEVO) about the pressures facing charities.
He recognised the financial pressures on charities as funding becomes less reliable whilst the demand for charities’ services, costs, discontent amongst staff and scrutiny of charity spending are all increasing. He recommended personal philanthropy as a source of funding, indicating that the Commission will not question controversial decisions to accept donations (unless wrongdoing or unlawfulness are feared) and that the Commission’s upcoming guidance on returning and refusing donations will encourage philanthropy.
He emphasised the Commission’s role as a regulator and in providing information and guidance. He emphasised that the Commission is not a spokesperson or representative for charities but spoke about the importance of fairness when it comes to the Commission’s decision-making (both in terms of maintaining trust in charities and being fair to trustees).
Related to that ‘guidance’ role, he touched on last year’s High Court decision in Butler-Sloss and Others v The Charity Commission for England and Wales and Another about green investments, and the Commission’s yet-to-be-published re-written guidance on the issue of ethical investments. For more information about that judgment, see Natalie Barbosa’s blog post.
He also addressed concerns about the Charity Commission’s social media guidance. He encouraged charities to maintain a suitable tone when making political public statements and emphasised that charities must do what is best for their beneficiaries and their purposes. You can read more about charities, public statements and social media in Natalie Barbosa’s recent blog post. If you are concerned about any of the issues raised do contact Natalie or another member of our charities team.
Failure to report sexual abuse to be made illegal?
Last year, the Independent Inquiry into Child Sexual Abuse (IICSA), made a number of recommendations to the Government, urging institutions to take better action to protect children against sexual abuse. A key recommendation was for the Government to implement a statutory requirement of mandatory reporting. In the coming days, the Government is expected to set out details of its plans to better protect children, including whether or not the failure to report suspected child sexual abuse will become unlawful. As the Government starts to implement the recommendations from IICSA organisations will need to stay up to date with any action taken by the Government and ensure compliance with any new regulatory requirements.
For more information please see Molly Quinney’s blog post.
Neurodiversity in the workplace
Our colleagues, Libby Hubbard and Doug Mullen recently discussed in an ebriefing – the Employment Appeal Tribunal’s decision in McQueen v General Optical Council which provides lessons for employers in dealing with neurodivergent staff. They emphasise some of the key takeaways from the case, in particular, that such cases are highly fact-specific, neurodivergent conditions affect different people in different ways so making assumptions can be fraught with risk and best practice is for employers to engage in a dialogue with neurodivergent staff about what reasonable adjustments they require and to educate colleagues about neurodiversity – though specialist advice may be required if the employer is uncertain about the adjustments required and what may amount to a disability under S15 of the Equality Act 2010 in the circumstances. If you would like further advice on this issue, do get in contact with Libby Hubbard, Doug Mullen or the rest of the employment and pensions team.
The end of social investment tax relief
As social business lead partner, David Alcock, highlighted in his recent blog post, the end of Social Investment Tax Relief (SITR) has been confirmed. This decision has faced criticism given that SITR was the only tax relief specifically for social investments, with only commercial investments now getting relief.
If you are concerned about your sources of investment do get in touch with David Alcock.
The National Cyber Security Centre campaign – Cyber aware
The National Cyber Security Centre (NCSC) is encouraging small businesses to improve their cyber defences using two tools. The first is the NCSC’s cyber action plan tool which provides a list of recommended actions to improve cybersecurity, free of charge. The second is the check your cyber security tool, which checks your computer systems for weaknesses and viruses, also free of charge.
Government push for non-profits to bid for public contracts
The Department for Culture, Media and Sport (DCMS) is encouraging voluntary, community and social enterprise organisations (VCSEs) to put in bids to supply public services. The Government is keen to reflect social value as well as low cost in the supply of public services but recognises that VCSEs have difficulties when putting in bids. The DCMS has, therefore, launched the VCSE contract readiness programme and public services hub to provide guidance to VCSEs about how to engage in the public procurement and bidding process.
For more information
For more information or advice on the topics raised in this month’s newsletter, please contact Sarah Tomlinson. Sarah is an Associate in the governance, funding and corporate team, specialising in advising local, national and international charities on all aspects of charity law. She also has experience of liaising with the Charity Commission on regulatory and compliance matters and has three times been appointed by the Charity Commission as an Interim Manager as part of the Commission’s regulatory action during an inquiry.
