The Regulator for Charities in England and Wales
In this section...
UNSECURED LOANS INVOLVING TRUSTEES' INDEMNITY
Functional responsibility
| For action | Charity Services | For information | All operational units |
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| Note: the guidance in this OG relates to unincorporated charities only. Charitable companies borrow money in their own name, which does not involve, in theory, trustees borrowing in their own names and relying on being indemnified from the charity. | |
| Where trustees have a power to borrow money, and repayment of the money is not secured by a formal charge against any property of the charity, the lender will be limited to relying on the personal covenant of the trustees to repay the loan. But trustees who borrow funds to apply for the purposes of the charity will expect to be indemnified out of the charity’s assets rather than having to pay back the money personally. Such a right of indemnity will be secured by an equitable charge over the property of the charity. This charge arises by operation of statute law (s.30(2) of the Trustee Act 1925). It does not depend for its validity upon compliance with s.38 of the 1993 Act. However, the trustees’ right to an indemnity only exists if the trustees have, in incurring the loan, and when using the monies borrowed, been acting properly in the administration of the charity. | |
| Advice on how trustees should proceed is set out at points 63 and 64 of Disposing of Charity Land (CC28). | |
| If the loan is called in early by the lender and the trustees approach us for advice on alternatives to the sale of land for the purpose of repaying the loan, we should encourage them to examine other options. Where it seems likely that the issue is a symptom of wider financial difficulties, we should refer trustees to our publication Managing Financial Difficulties and Insolvency in Charities (CC12). |
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Glossary of Terms used in this Guidance | |
| 1993 Act | |
| trustees | |
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