Do you qualify for disqualification?
Debbie McIlwraith Cameron originally wrote this article for The Scotsman
It is a criminal offence to act, or continue to act, as a charity trustee if you are disqualified under the Charities and Trustee Investment (Scotland) Act 2005 (“the 2005 Act”) and you may be liable on conviction to imprisonment, a fine or both. With such serious implications, it is vital that charities have a working knowledge of the applicable disqualification criteria.
Before delving into the extension of the disqualification criteria, what are the existing criteria?
The 2005 Acts sets out specific circumstances under which an individual cannot be appointed, or continue to act, as a charity trustee. It is important to note that disqualification here is automatic from the point the criteria apply, until they do not. You cannot act as a charity trustee if: (i) you have an unspent conviction for an offence involving dishonesty or under the 2005 Act; (ii) your bankruptcy/sequestration is undischarged; (iii) you have granted a Protected Trust Deed/entered into an Individual Voluntary Arrangement; (iv) you have been removed by a court from being a charity trustee, or (v) you have been disqualified from being a company director.
Whether an individual falls under the above criteria should be determined before appointment, and if a trustee’s personal circumstances change during their trusteeship, they are under a duty to disclose this, as their appointment must automatically cease. It is common for governing documents to include this automatic disqualification criteria amongst other conditions which terminates a trustee’s appointment if triggered.
While you may have to rely on information provided by an individual in good faith in relation to their personal circumstances, there are some publicly available methods to carry out necessary due diligence. For example, OSCR has recently introduced a searchable Record of Removed Persons on its website which contains a list of individuals removed from being a charity trustee by the Court of Session.
Are there any exemptions or limits to the disqualification criteria?
Firstly, a disqualified individual may apply for a waiver from OSCR to allow them to act as a trustee. The individual can apply for waiver of their disqualification in relation to a specific charity, a type of charity or simply charities in general. Each case is considered and decided on its own merits and is fact specific. OSCR lists the variables and supporting evidence that it will consider in each case in its guidance on the matter.
Secondly, some of the disqualification criteria are time sensitive. Automatic disqualification because of a conviction, bankruptcy and a Protected Trust Deed only exists while they remain unspent and undischarged respectively.
How is the 2023 Act extending the disqualification criteria?
The implementation of the Charities (Regulation and Administration) (Scotland) Act 2023 (“the 2023 Act”) extends the disqualification criteria in two ways; increasing the list of criteria and expanding the range of people to whom it applies.
The automatic disqualification list will now include being convicted of the following offences: terrorism, money laundering, bribery, perverting the course of justice, wilful neglect of duty by a public official/misconduct in public office and sexual offences. Existing criteria has also been extended to plug any potential gaps. For example, the wider definition of being removed as a charity trustee includes being removed as such in Northern Ireland.
So far, this is in line with the existing criteria and is uncontroversial. The key change is that the disqualification criteria extend to staff and volunteers holding an office or employment with “senior management functions” within the charity, as well as charity trustees. The ability to apply for a waiver continues to apply to all individuals affected.
The 2023 Act provides a definition of “senior management function”: (i) if the function relates to the management of the charity and the individual is not accountable to anyone higher within the charity, except the charity trustees (e.g. the Chief Executive role), and (ii) if the function relates to the control of money, and the only person the individual is accountable to (except the charity trustees) is someone else exercising a senior management function other than to do with the control of money (e.g. the Finance Director role). In the related guidance published by OSCR, the regulator is clear that an individual’s role/job title is not the deciding factor; you must consider the actual function the individual undertakes. The guidance helpfully contains questions, a flow chart and examples to help determine when the extended rules apply.
So, what are the practical implications?
Charities may wish to take the opportunity before the 2023 Act extensions are implemented from 31st August to undertake due diligence to ascertain whether any of the current trustees would come under the extended criteria and update any appointment/induction policies as required. Charities should also consider if any of their employees or volunteers carry out “senior management functions” and if they must cease to act in that position. OSCR has advised that it will start accepting and processing waiver applications under the new criteria from 30th June, 2 months in advance of the implementation date. The Regulation has also advised that priority will be given to those in post before the implementation date.
Trustees may wish to add the potential consequences of automatic disqualification (e.g. loss of the Chief Executive/Finance Director, trustee numbers being below the minimum, inability to convene a quorate meeting) and mitigation methods (e.g. due diligence, ability to re-deploy within the organisation) to the charity’s risk register, if appropriate in the circumstances.
If an automatic disqualification event were to occur, depending on the circumstances, it would be advisable to seek HR/employment advice to ensure the correct processes are being followed.
Overall, the rules seek to strengthen public trust in charities and those in control of charitable assets, ensuring only those who are ‘fit and proper’ are in such roles.