If your charity is set up as a company limited by guarantee, then in its dealings with third parties such as employees, suppliers for goods and services, funders, collaborators, volunteers, the landlord of the premises or indeed in negligence claims or with creditors, the liability and contractual arrangement is between the company and that third party.
However there is a risk that company directors can find themselves personally liable in some circumstances. Charity trustees can also find themselves personally liable.
This potential personal liability arises if there is, for example, a breach of trust by a charity trustee in carrying out their duties or failing to carry out their duties to the required standard.
If a director knows that the charity company is insolvent but continues to allow the company to carry on trading with third parties, or gives preferences to third party creditors, in such a case the director can potentially be personally liable to have to make good any loss incurred by the charity company from the date of insolvency.
There are also potential personal responsibilities of charity trustees such as the requirement to make reports to the Charity Commission for Northern Ireland and the requirement to register with the Charity Commission. These responsibilities belong not to the company charity but to the charity trustees themselves, so they are accountable to the Charity Commission which can exercise its powers directly against trustees.
The Commission even has powers to remove a charity trustee from office, where there is evidence of misconduct and mismanagement in the administration of the charity.
There are other areas of law where potentially there could be personal liability attaching to those on a board, such as health and safety, defamation, discrimination, data protection, infringement of rights, crime and fraud.
It is important that charity trustees and company directors understand their duties and responsibilities and those circumstances where they could be personally liable.
Whilst most charity boards will have the benefit of trustee indemnity insurance, the terms of these policies need to be carefully scrutinised and it is best that when charity trustees join a board, that they undertake an induction programme and that they are made fully aware of their duties and responsibilities to ensure that they know how to act properly and for the benefit of the charity, but also to ensure they are carrying out their role responsibly and to ensure that they are protecting themselves and their fellow trustees.
The Running Your Charity Guidance on the Charity Commission’s website is useful in this regard, but if you have any specific concerns about potential liability of charity trustees or directors of charitable companies, please contact either Jenny or Sarah who will be glad to help.