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This week – 6 to 10 November - is Trustees’ Week, a time to celebrate the achievements of nearly one million trustees across the UK who give their time, and bring commitment, experience and expertise to charities to help them to thrive. But how many trustees are aware of their potential exposure to personal criminal liability if their charity gets things badly wrong?

The vast majority of trustees serve without financial reward. Nowadays most prospective trustees are aware of the risk they would run of personal liability if they joined the board of an unincorporated charity which is “operational”, in particular one which contracts with suppliers or clients, employs people or holds property.

And if a charity pays for trustee indemnity insurance for its board members then often this provides comfort to those considering becoming trustees, in case inadvertently they were to act in breach of trust.

In 2021 the judgment of Mrs Justice Falk in the ‘Kids Company’ High Court case - when the Official Receiver unsuccessfully brought company director disqualification proceedings against the former trustees and chief executive of that charity - highlighted the public policy importance of not discouraging people from serving as charity trustees: 

“The charity sector depends on there being capable individuals with a range of different skills who are prepared to take on trusteeship roles… It is vital that the actions of public bodies do not have the effect of dissuading able and experienced individuals from becoming or remaining charity trustees..” 

There are many events planned for trustees throughout this week: Events from 10 November – 10 November – Trustees Week but one emerging risk of becoming a trustee of many charities which is not often highlighted is the potential personal criminal liability of those trustees of incorporated charities, most commonly those who are at the same time directors of charitable companies, which arises from an increasing number of regulatory offences.

These range from offences under health and safety legislation, anti-money laundering, to those under the Companies Act 2006. And while the new corporate offence of failure to prevent fraud under the recently enacted Economic Crime and Corporate Transparency Act 2023 (which will apply to charities meeting the definition of a ‘large organisation’) will not lead to company directors being held individually liable and prosecuted for failure to prevent fraud, individuals within companies can already be prosecuted for committing, encouraging or assisting fraud.

Trustee indemnity insurance will not cover any liability incurred by trustees to pay a fine imposed in criminal proceedings, or liability incurred by trustees in defending any criminal proceedings in which they are convicted of an offence arising out of any fraud or dishonesty, or wilful or reckless misconduct - and insurance certainly won’t keep trustees out of jail in the most serious of cases. 

And the relatively low number of prosecutions brought against company directors should not lead to an underestimation of the stress upon individuals and the loss of management time of the organisation that employs them, which results from an investigation into whether charges should be brought.  

Shoosmiths will be running a lunchtime webinar on this topic next Tuesday 14 November at 12:30pm. Please join us if you would like to learn more:  Criminal liability for charitable company directors webinar (shoosmiths.com).