What happens when there has been a breach of trust?

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The Charity Commission’s new policy on the recovery of charitable funds confirms they will not hesitate to take action when charity property is lost as a result of Trustee wrongdoing.

Although it is acknowledged that trustees are volunteers who generously give up their time and often expertise to benefit the public, they also hold positions of tremendous responsibility and owe a duty of care to the charities they represent. When trustees fail to act with the level of care required, the Charity Commission have clarified the approach that should be taken in its new policy: ”restitution and the recovery of charitable funds misappropriated or lost to charity in breach of trust” (the Policy).

There is a danger that if penalties are too strong the risk of acting as a trustee will overshadow the reward and ultimately people will be deterred from volunteering. The Policy therefore reassures trustees that they will not be pursued for any loss incurred as a result of an honest mistake.

When property has been lost as a result of a serious breach of trust, however, the trustees should be expected to take steps to recover the loss. The Policy states that a serious breach of trust would include a trustee gaining personally from the misappropriation of property or where significant losses are caused by very poor decision making, made without proper advice or where irrelevant factors are taken into account.

The Policy makes it clear that when serious losses have occurred, trustees should seek legal advice, consider what steps they can take to recover the property, the likelihood of successfully recovering the property and the possible effects of their actions.

In cases where trustees are unwilling or unable to take the necessary steps to recover the loss, the Charity Commission will consider stepping in and bringing enforcement action (if it is in the public interest to do so). Enforcement action might involve issuing legal proceedings, “freezing” charity accounts, opening a statutory enquiry (a formal investigation into a matter of regulatory concern) or appointing new trustees.

Overall, the Policy should serve to reassure trustees that provided they understand their duties and act responsibly when carrying them out, they need not have too many sleepless nights. At the same time, however, it should also reassure the public that if the Charity Commission are alerted to wrongdoing, they will not hesitate to step in.

How can we help you?

If you would like to discuss any issues raised by this article, please contact Adam Williams on 0121 456 8420 or adam.williams@mills-reeve.com.

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