Charity & Trustee Disputes

Charity & Trustee Disputes FAQS

Below, we have answered some frequently asked questions concerning charity & trustee disputes

• What are common types of charity disputes?

  Charity disputes can take various forms, often involving different stakeholders within the organisation:

  • Conflicts between trustees: These may arise due to disagreements over strategic direction, resource allocation, or personal differences. Such conflicts can paralyze decision-making and harm the charity’s operations if not addressed promptly.
  • Disagreements over charity administration or finances: This could involve disputes about budgeting, investment decisions, or the allocation of funds to different programs. Financial mismanagement or lack of transparency can also lead to disputes.
  • Disputes with donors or beneficiaries: Donors may claim that their funds were misused or that the charity didn’t fulfil agreed-upon conditions. Beneficiaries might dispute the fairness of resource distribution or the quality of services provided.
  • Issues with regulatory compliance: Charities must adhere to various regulations, and disputes can arise if there are allegations of non-compliance with charity law, tax regulations, or other relevant legislation.

• When might trustees face legal action?

  Trustees can face legal action in several scenarios:

  • Breach of fiduciary duty: Trustees have a legal obligation to act in the best interests of the charity. If they fail to do so, whether through negligence or deliberate action, they may face legal consequences.
  • Misuse of charity funds: This could involve using charity resources for personal benefit, making unauthorized payments, or allocating funds to purposes outside the charity’s remit.
  • Failure to follow proper governance procedures: This might include not holding required meetings, failing to maintain proper records, or making decisions without proper authority.
  • Conflicts of interest: If trustees fail to declare and properly manage conflicts of interest, particularly if these conflicts result in decisions that benefit the trustee at the expense of the charity.

• How can charities resolve internal disputes?

  Charities have several options for resolving internal disputes:

  • Mediation: A neutral third party can help facilitate discussions and find mutually agreeable solutions. This can be less costly and adversarial than formal legal proceedings.
  • Board intervention: The board of trustees may need to step in to resolve conflicts, potentially by creating special committees or bringing in external advisors.
  • Seeking advice from the Charity Commission: The Commission can provide guidance on governance issues and may offer a formal advice service for complex matters.
  • Legal action as a last resort: If other methods fail, legal proceedings might be necessary. However, this should typically be viewed as a last resort due to potential costs and reputational damage.

• What role does the Charity Commission play in disputes?

  The Charity Commission plays a crucial role in overseeing charities and can become involved in disputes in several ways:

  • Provides guidance on charity law and governance: The Commission offers extensive resources and can provide specific advice on legal and procedural matters.
  • Can intervene in serious cases of misconduct: If there are allegations of serious mismanagement or misconduct, the Commission has powers to investigate and take action.
  • May appoint interim managers in extreme situations: In cases where there’s a significant risk to a charity’s assets or beneficiaries, the Commission can appoint temporary managers to take control.
  • Offers a complaints process for issues with charities: The public can raise concerns about charities to the Commission, which may then investigate if warranted.

• Can donors take legal action against a charity?

  The ability of donors to take legal action against a charity is generally limited:

  • Specific conditions of a donation were breached: If a donation was made with explicit conditions and these were not met, a donor might have grounds for legal action.
  • Legal standing may be limited without direct involvement: Generally, once a donation is made, the donor no longer has control over those funds. This limits their ability to take legal action unless they have some ongoing involvement with the charity’s operations.
  • Potential for reputational action: While not strictly legal action, donors might publicly voice their concerns, potentially damaging the charity’s reputation and future fundraising efforts.

• How can trustees protect themselves from liability?

  Trustees can take several steps to protect themselves:

  • Maintain thorough records of decisions and actions: Detailed minutes of meetings and clear documentation of decision-making processes can provide crucial evidence of proper conduct.
  • Ensure compliance with charity’s governing document: Trustees should be familiar with and adhere to the charity’s constitution or articles of association.
  • Seek professional advice when needed: On complex matters, particularly those involving legal or financial risks, trustees should not hesitate to seek expert advice.
  • Consider trustee indemnity insurance: This can provide financial protection for trustees in case of legal action, although it typically doesn’t cover cases of wilful misconduct.

• What are the potential consequences of losing a charity dispute?

  The consequences of losing a charity dispute can be severe:

  • Financial penalties or repayment orders: Trustees found to have misused funds may be required to personally repay the charity.
  • Removal from trustee positions: The Charity Commission or the Courts may disqualify individuals from serving as trustees.
  • Reputational damage to the charity: Public disputes can harm a charity’s reputation, potentially affecting donations and support.
  • Potential criminal charges in severe cases: In instances of fraud or serious misconduct, trustees might face criminal prosecution.