1 November 2012

Disqualification order under the Charities Act

Introduction

Are you an officer of a charity? Perhaps you are on the committee of the local swimming club, or a trustee of a charitable trust. If so, you need to be aware of the increased attention being paid to charitable officers.

The Charities Act 2005

The Charities Act 2005 (the Act) is a relatively recent development in charities legislation. The Act established a Charities Commission, now called the Charities Board (the Board) with the function of promoting public trust and confidence in the charitable sector. The Board encourages good governance and management practices, by providing educational material and other help to enable organisations to be more effective. To perform these functions, the Board has wide powers under the Act. In June 2012, the Board (then the Charities Commission) made its first significant order disqualifying an individual from being an officer of a charitable entity for a period of three years. The Board found that Mr Smyth engaged in conduct that amounted to “serious wrongdoing” under the Act.

Serious wrongdoing

The Act sets out that serious wrongdoing is:

• An unlawful or a corrupt use of the funds or resources of the entity; or
• An act, omission, or course of conduct that constitutes a serious risk to the public interest in the orderly and appropriate conduct of the affairs of the entity; or
• An act, omission, or course of conduct that constitutes an offence; or
• An act, omission, or course of conduct by a person that is oppressive, improperly discriminatory, or grossly negligent, or that constitutes gross mismanagement.

The Act also provides that the Board may, if it has removed an entity from the charities register, make an order disqualifying an officer from being an officer of a charity for a period of up to five years.

A person must not state or imply that an entity is registered under the Act when that entity is not registered. Every person who does so may be liable for a fine not exceeding $30,000.

Decision of the Board

After an extensive investigation, the Board found that Mr Smyth had engaged in a number of activities that were breaches of the Act, constituted serious wrongdoing, could mislead the public, and erode the public’s trust in the charitable sector. These included:

• Using a false name on behalf of a registered charity;
• Stating that the false name held status as a trustee of a registered charity;
• Listing the false name as a primary contact on another entity for which Mr Smyth was trustee, and that sought registration with the Board;
• Posting six online auctions, indicating that the auctions were on behalf of a registered charity when in fact, the charity had been deregistered;
• Posting a further online auction after receiving a formal warning not to engage in such conduct;
• Failing to respond to notices sent by the Board without reasonable excuse;
• Failing, significantly and persistently, to attend to the Trust’s administrative duties and its obligations under the Act to the point the Trust was being grossly mismanaged.

Mr Smyth was disqualified from being an officer of a charity for a three year period.

Comment

It is clear from the facts that Mr Smyth was actively involved in breaches of the Act: he was not an “innocent victim” of the Board. What this case does show is that there are real consequences for those involved with charities (or non-charities, as the case may be).

Tips to avoid disqualification

We recommend all charities adopt the following practices:

• Be familiar with your rules and follow them;
• Keep accurate records of all meetings and correspondence;
• Consider engaging an administrator to assist with compliance;
• File annual returns under the Act;
• Do not ignore communication from the Board.

If you would like further information please contact Jessica Middleton on 07 958 7436.