Philip Kirkpatrick, Partner, Bates Wells LLP looks at some of the issues around trustees having leave from their duties.
The question about whether charity trustees could take leave is a really interesting one. The answer is that, yes, this could be arranged but it would be unwise without putting safeguards in place. And this applies not only to parental leave. There are a few situations in which a trustee might need to be absent for an extended period. Ill health is one example.
Although employees have statutory rights to parental leave, there is no such right for volunteers, which most charity trustees are. The statutory rights would apply, however, to trustees who are also employees.
That is quite rare in the charity sector – but there are nevertheless many cases where Chief Executives are on boards.
Breach of duty
It is standard practice for commercial board members (usually directors of limited companies) to be employees with executive roles. Neither employment nor company legislation discusses director duties when they take parental leave as an employee. Therefore a director’s duties, set out in the Companies Act 2006, do not disappear during leave. They remain responsible despite their absence.
Directors may have duties that require positive action. Failing to act appropriately could lead to personal liability for breaching those duties. One example is the duty under section 214 of the Insolvency Act 1986. Directors must protect creditor interests if insolvency seems unavoidable.
Duties still apply
Courts might be lenient toward directors on parental leave or sick leave. But the question might be: if they knew they couldn’t fulfil their duties, why didn’t they resign?
Trustees of charitable companies are in the same position. If they are absent for an extended period for any reason, their company law duties still apply.
Trustees of other types of charity have similar duties established through case law and, for trustees of trusts, there is the duty of care under section 1 of the Trustee Act 2000.
Leave: worth the risk?
On the whole, things don’t go wrong and liabilities for breach of duty don’t arise, or if they do there will be insurance to cover them. But is it worth the risk? I think not. I think a trustee should either resign or, if they can, continue to act as a trustee during the period of absence. If the charity has very regular meetings, the trustee might reduce their engagement – they need not attend every meeting (unless the governing document says otherwise) and could simply consider board papers, which would enable them to understand whether any action from them might be required.
Neither of these options may be palatable to the trustee, and continuing to engage might not even be possible during a period of illness. So, is there something that could be done to improve the situation? I think there is.
Trustees and leave: a possible solution
For trustees of charitable companies, it might be possible to rely on section 184(4)(a) of the Companies Act 2006. This provides that the general duties of directors ‘have effect subject to any rule of law enabling the company to give authority, specifically or generally, for anything to be done (or omitted) by the directors, or any of them, that would otherwise be a breach of duty.’
In theory, therefore, a set of articles could disapply the general duties of the director during an extended period of absence. The director would be left with an irreducible core of responsibilities (for example, to act honestly and in good faith) but could probably be exempted from fulfilling most director duties. However, I have never seen this done, nor do I think it could overcome other duties, such as the one under the Insolvency Act 1986 referred to above, so it’s not a solution I would recommend. I think it would also cause a good deal of puzzlement to the Charity Commission, which might still try to exercise its statutory powers in relation to a director in an appropriate case.
Trustees of charitable incorporated organisations
This possibility is not available to trustees of charitable incorporated organisations. Section 221 of the Charities Act 2011 sets out the duties of trustees of CIOs so, like company directors, their duties are statutory. The section allows regulations to ‘provide for limits on the extent to which, or the cases in which, a CIO’s constitution may disapply the duty’ but no such regulations have been made.
Disapplying duties could certainly be done with charities that are not limited companies or CIOs. This is because it is clear that their governing documents can disapply duties, provided that this does not go further than the irreducible core of duties.
Trustees of trusts
For trustees of trusts, who are subject to the duty of care in section 1 of the Trustee Act 2000, that Act provides that ‘the duty of care does not apply if or in so far as it appears from the trust instrument that the duty is not meant to apply’.
Charities that are not companies or CIOs can even provide for a trustee to be relieved of liabilities during the period of absence. This means they can be indemnified out of the charity’s assets in respect of any claims brought against them alleging any failure to take any action during the period of absence. However, adding indemnity and exclusion of liability provisions to existing charity governing documents would require Charity Commission authorisation. I can imagine there being some reluctance on the Commission’s part.
Trustees of trusts and unincorporated associations, who do not have the benefit of limited liability afforded by corporate structures, would also need to be wary of liabilities to third parties for acts or omissions taken or made in their name as trustees, should the charity not have enough assets to meet a claim.
Amending the governing document – a better solution for trustees and leave?
The above solutions all create a degree of uncertainty (and don’t work for CIOs anyway). A better solution for charities would be to allow in the governing document for trustees to take extended leave. The situations in which that would be possible should be specified. During the period of absence, the individual ceases to be a trustee. At the end they automatically become a trustee again.
This would involve updating statutory registers. However, it would give reassurance in two areas to the trustee on leave. Firstly that they have no liability, and secondly they are assured of returning to complete their term of office.
Consideration would have to be given as to term time. Does it continue to run while they are away or is it deemed to stop and then start again? Charities with quite rigid sequences of trustee rotation may prefer the former so terms do not get out of kilter.
Trustees and leave – where we are now
In summary, there is currently no established mechanism for a charity trustee to take any extended leave of absence. They would remain responsible, and at risk to some extent. However, changes could be made to governing documents to make this possible.
About our guest author Philip Kirkpatrick
Philip is a Partner at Bates Wells, a purpose-driven law firm (and the first in the UK to become a B Corp). Bates Wells is the largest group of dedicated charity solicitors in the UK. Read more about their work with charities here. Philip’s clients are charities and non-profit organisations of all kinds. He also works with philanthropic individuals and commercial companies.
