Following the recent decision by the insolvency service to bring disqualification proceedings against the former directors of children’s charity Keeping Kids Company, the conduct of charitable trustees is more pertinent than ever.
Launching as a drop-in centre, Keeping Kids Company eventually expanded with a total of eleven centres across the UK. However in August 2015, the company placed itself into compulsory liquidation with a winding-up order being made later that month. Subsequently, the current proceedings will name the eight former directors of the charity as well as the former chief executive Camila Batmanghelidjh who was acting as a de facto director.
The obligations and responsibilities when acting as a voluntary director are very much the same as becoming a director of a limited company. Should financial failings by the company be exposed and your conduct as a director be deemed to have been ‘unfit’ you could be disqualified from holding the position of a director for up to 15 years. Additionally, this would affect any directorships currently held even if it is held outside of the organisation under investigation.
It is important that anyone who is considering becoming a director, even a voluntary director, of a charitable organisation is aware of the potential risks involved. Below are some top tips for ensuring that you comply with what is required from you as a director:
Ensure that the public benefit is the main purpose
There should be a clear understanding on the aims and objectives of the charity with plans on what the charity is to achieve. Additionally, there should be consideration of who the charity benefits and how the activities carried out help to achieve the aims.
Exercise care, skill and diligence
This means that the director of an organisation must have the requisite knowledge, skills and experience required to effectively carry out the role. Additionally, you have a duty to actively take part in the organisation including attending meetings and dedicating time to the role.
Act in good faith
This requires a director to be fair, open and honest and would include taking appropriate measures when a company becomes insolvent, keeping proper accounting records and paying all tax owed by the company. It should be noted that whilst a director may employ an accountant or finance manager to control this side of the business, the legal responsibility still falls with the directors.
Be responsible with company resources
As a director, you should ensure that you act prudently with the charity’s funds and assets as well as not taking risks. Additionally, extra care should be taken when borrowing or investing. It is advisable that certain precautions are put in place so as to avoid any issues that could potentially arise.
Be aware of all that is required of you
It is paramount that as a director you are aware of and comply with directors duties. There can be serious consequences for failing to comply with those duties for example where a company is insolvent but continues to trade, the directors can become personally liable for the debts and in the most serious of instances can face disqualification following investigation.
For directors wishing to avoid investigation and disqualification, there can be no substitute for vigilance and caution. Expert legal advice is key in reviewing all relevant documents, financial reports and contracts before agreeing to become a director, voluntary or otherwise.
With the increased spotlight being put on those in the charity sector and after a series of high profile investigations by the Charity Commission, the above advice has never been more relevant.
Please feel free to contact our commercial law team on 01616 966 229.