OG42 B1 - PROCESSING APPLICATIONS

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OPERATIONAL GUIDANCE

WAIVER OF DISQUALIFICATION FOR ACTING AS A CHARITY TRUSTEE

PROCESSING APPLICATIONS

OG 42 B1 – 27 February 2007

Purpose

This guidance details how to process applications for waivers, and what should be taken into account.

Contents

1. Form of application
2. Divisional responsibility
3. Initial action
3.1 Treatment of cases
3.2 General enquiry or insufficient application
3.3 Enquiry or application relating to a particular charity or charities
4. Action following issue of model letter
4.1 No reply
4.2 Application not proceeded with or withdrawn
4.3 Examination of governing document
5. Disqualification stems from undischarged bankruptcy, composition or arrangements
5.1 General principles applying to undischarged bankrupts
5.2 Is there a provision in the governing document that would override any waiver we may grant?
5.3 Is a waiver actually necessary for being a trustee of a charitable company?
5.4 What factors will we consider when assessing an application for a waiver in such a case?
5.5 What led to the bankruptcy in the first place?
5.6 Balancing risks against the rewards of granting a waiver
5.7 Applying the "risk against reward" test when considering whether to grant a waiver
5.8 Statutory restrictions on undischarged bankrupts and potential implications for trustees
5.9 Demonstration of need for the trustee to be granted a waiver to continue to act
6. Disqualification unconnected with bankruptcy
6.1 Section 72(4A) cases
6.2 Factors to consider in cases other than s.72(4A) cases
7. Views of the other trustees
Glossary of Terms used in this Guidance

Index to further related information


The Law	Refer to a lawyer	Refer to an accountant

1. Form of application
	Any application for a waiver of disqualification must be submitted by the individual concerned.
	While there is no specific form for an application, there are certain factors which should be addressed by the applicant in his or her application are set out in the checklist at OG 42 X1. This should be sent to the applicant at the point of the first enquiry, or if not previously sent and the application does not cover everything that it should, when the application is received. See section 3 below for more information on the treatment of applications.
	The checklist should only be taken as an indication of the information we require. Every case will have specific factors which may mean we need more, or less, information.
	It must be clear from the application that it has come from the individual concerned, and he or she should have signed it. It must also be clear (or this information obtained at the point of the first enquiry) whether the waiver he or she is seeking is general or specific to certain charity or charities.
	We will not accept applications from bodies of trustees on behalf of an individual, although we may well wish to see evidence of their support for his or her disqualification to be waived, and their views on some of the factors mentioned in the checklist .

2. Divisional responsibility
	All applications for waiver of disqualification will come into Charity Commission Direct (CC Direct) initially. They will conduct an initial check to ensure that all the relevant information has been included, and under which provisions the applicant had been disqualified as a trustee, and if not, refer it to back to the applicant.
	If the application is in order, CC Direct will forward it to the Quick Response Unit (QRU), or Large Charities Unit (LCU) where, in most cases, correspondence and conduct of the case will be carried out.
	If the case is more complex, and/or it is possible that we may not grant the application, after initial correspondence, QRU will forward the application on to Advice and Orders or Welsh Charities Unit.
	Initial correspondence and conduct of the case will normally be carried out at PB3 level, although cases of particular complexity or sensitivity may be allocated to PB4 or PB5 grades. (NB This covers just the casework: the level authority for the actual decision whether or not to grant the waiver is Head of Division or above – see OG 42 B2).
	If there is doubt as to whether a waiver should be granted after considering all the issues outlined below which are relevant to the case, it should be referred to a lawyer for advice.

3. Initial action
	3.1 Treatment of cases 3.2 General enquiry or insufficient application 3.3 Enquiry or application relating to a particular charity or charities
3.1 Treatment of cases
	The order of the initial steps in dealing with a case will depend on the initial contact. It is more usual for us to consider applications for waivers of disqualification in respect of a particular charity or even a group of charities with similar characteristics. An application for a general waiver of disqualification requires closer scrutiny and is generally more difficult to accept, unless the applicant was removed from trusteeship as a result of misconduct or mismanagement and it has been at least 5 years since they were removed where we can only refuse for special circumstances – see OG 42 A1 section 5.2.

3.2 General enquiry or insufficient application
	Any person who enquires about our policy regarding waivers or who submits an application which is not sufficiently comprehensive should be sent a suitably adapted version of one of the model letters noted below together with the list of factors we are likely to take into account (OG 42 X1).
	Although the form of an application and its contents are matters entirely for the applicant and his or her legal advisers, it is important that they know the factors which we are likely to take into account. This will enable the applicant to deal with the issues which we consider relevant and thus ensure an informed and fair consideration of his or her case on its merits; it will also avoid any subsequent suggestion that this opportunity was denied to him or her.
	These model letters together with the accompanying list of factors, then, list the main points likely to be taken into account in considering an application and invite the applicant’s observations on these and any other relevant matters.
	One model letter should be used where the applicant is an undischarged bankrupt or has made a composition or arrangement with his or her creditors (OG 42 L1). The other (OG 42 L2) should be used where the disqualification stems from trustee misconduct or management.

3.3 Enquiry or application relating to a particular charity or charities
	Most contacts will probably be general enquiries at this initial stage, but where an enquiry or application is received regarding a waiver from disqualification for acting as trustee of a particular charity or charities (i.e. a specific waiver), the attention of the applicant should be drawn particularly to the point in the model letter dealing with the provisions of the governing document(s) of the particular charity/ies. Where it is clear at the outset that there is a provision in the governing document which will make any waiver in respect of a particular charity ineffective, the applicant should be informed accordingly. There would usually be no purpose in the applicant pursuing his or her application in respect of that charity in these circumstances (although an application for a waiver in respect of any other charities without such a provision would be unaffected).

4. Action following issue of model letter
	4.1 No reply 4.2 Application not proceeded with or withdrawn 4.3 Examination of governing document
4.1 No reply
	If no reply is received within four weeks of the issue of an L1 or L2 letter, a suitably adapted form of the model letter at OG 42 L3 should be issued reminding the applicant that it is a criminal offence for a person to act as a trustee of a charity whilst disqualified to do so.

4.2 Application not proceeded with or withdrawn
	If an applicant notifies his or her intention to withdraw an application or not to proceed with one not yet formally made, this should be acknowledged and, unless it is clearly unnecessary, a reminder issued on the lines of the last paragraph of the model letter at OG 42 L3 as to the consequences of acting as a trustee whilst disqualified.

4.3 Examination of governing document
	Where an application is received, following the issue of the model letter, and it is in respect of a particular charity or charities, the governing document(s) should be examined (this should already have been done in the case of applications received before issue of the model letter – see 2.3 above) to check that there is no provision for the disqualification or determination of trusteeship in the circumstances of the applicant. If there is such a provision, a waiver of disqualification would not be effective in respect of that particular charity and the applicant should be informed accordingly.
	In all other cases, the application should proceed for consideration by a Director or Head of Unit as appropriate.

5. Disqualification stems from undischarged bankruptcy, composition or arrangements
5.1 General principles applying to undischarged bankrupts
	We have no powers to grant waivers to undischarged bankrupts to act as trustee of a charitable company, unless the Court has already granted them an order under section 11 of the Company Directors Disqualification Act to act as a director of a company, charitable or otherwise.
	We can however grant a waiver to such a person to act as a trustee of a non-company charity.
5.2 Is there a provision in the governing document that would override any waiver we may grant?
	As previously stated, any provisions in the charity’s governing document regarding disqualification for, or determination of, trusteeship are paramount and may not be overridden by any waiver granted by us. If, therefore, the governing document of a charity stipulates that a person who is an undischarged bankrupt may not be a trustee, a waiver under s.72(4) would be ineffective in respect of that particular charity.
5.3 Is a waiver actually necessary for being a trustee of a charitable company?
	A person is disqualified from being a charity trustee or trustee for a charity which is a company if he or she:
	has been adjudged bankrupt; or
	has had their estate sequestrated;
	and in either case they have not been discharged.
	But if that person has been granted leave under section 11 of the Company Directors Disqualification Act 1986 for him or her to act as director of the charity then they are not disqualified from being a charity trustee of that charity.
	If no such leave has been granted, then, if the person concerned has the leave of the court to act as the director of any other company, we may consider granting a waiver in the usual way. If the person concerned does not have the leave of the court to act as the director of any other company, then we cannot grant a waiver, and an application to the court will be necessary.
5.4 What factors will we consider when assessing an application for a waiver in such a case?
	When considering an application for a waiver, where the disqualification originally stems from a bankruptcy, composition or arrangement we must act in the best interests of the charity.
	A list of factors we should take into account when considering an application for a waiver are listed in the checklist in OG 42 X1. The sections below look at some of these factors in more detail.
5.5 What led to the bankruptcy in the first place?
	Briefly, the Enterprise Act provides for the automatic discharge of most bankrupts after one year. It reduces the number of restrictions automatically placed on undischarged bankrupts. However, where the conduct of the bankrupt is considered by the Court to be culpable, it can place a bankruptcy restriction order on them, which among other things, prevents them from acting as trustee of a charity.
	In cases where the bankruptcy is still in force, we must assess the circumstances and the seriousness of the bankruptcy:-
	Is the bankruptcy of the trustee the result of deliberate or reckless disregard of the interests of creditors? ; or
	Was it the result of financial mismanagement?; or
	Were matters largely out of the hands of the trustee, and is it fair to say that circumstances beyond his or her control led to the bankruptcy?
	Before a waiver is granted, it must be established clearly that the financial difficulties of the applicant are not the result of his or her own recklessness or dishonesty.
	There are a number of instances where the applicant’s bankruptcy could have been brought about by influences largely outside his or her control. For example, an applicant could have been a shopkeeper in a community where most of the inhabitants work for a single large employer, such as a car assembly plant or coal mine. If the plant or mine closed, the subsequent unemployment could easily affect the shopkeeper’s business to the extent that the shopkeeper becomes bankrupt.
	As a general rule, partners are jointly and severally liable for the debts of the partnership. Where one partner secretly dissipated partnership property, the creditors of the partnership could require other partners to settle the partnership debts out of their own pockets, and make them bankrupt if they failed to pay. In such a case bankruptcy might well be said to be the result of misfortune.
	Care will need to be taken when assessing the primacy of the part played by external factors in the bankruptcy, so as to ensure that factors which might reasonably be expected to be within the applicant’s control are not overlooked.
5.6 Balancing risks against the rewards of granting a waiver
	In the case of Re Barings plc and others (No 3) [1999] All ER 1017, the basic principle which commended itself to the judge was that, when considering whether to misapply a statutory prohibition against acting as the director of a company, the Court had to balance two competing policy objectives.
	On the one hand, the success of a particular enterprise might depend on the leadership or participation of the disqualified person.
	On the other hand, there was the need to protect shareholders, creditors and the public from people whose failure to discharge the fiduciary duties associated with the direction of companies had in the past damaged their interests.
	The court recognised a spectrum of culpability or range of blameworthiness in the failure to discharge those duties. The more culpable the failure, the greater the risk to the public of allowing the disqualified director to act. The greater that risk, the stronger the evidence of the importance of the disqualified director's involvement in a particular enterprise which would be necessary to tilt the balance in favour of non-disqualification. (Where a director had deliberately exploited the immunity from personal liability which is normally associated with the position of company director, and had effectively lived at the expense of the company's creditors, the question of waiver would not arise at all.)
	The disqualification in the Barings case was not the result of bankruptcy, but this idea of a balancing act between the risks and rewards of granting a waiver seems equally applicable to the situation where the disqualification of a trustee is the result of bankruptcy, or the other insolvency-related regimes referred to in section 72.
5.7 Applying the "risk against reward" test when considering whether to grant a waiver
	In applying the risk/reward test, each situation, of whether to grant a waiver or not, will need to be considered individually. It may seem more clear cut in some cases than others. For example:
	If a particular bankruptcy is the consequence of a deliberate or reckless disregard of the interests of creditors, then it would seem appropriate never to grant a waiver.
	At the other end of the spectrum, if bankruptcy really is simply a matter of misfortune, it can (subject to the point discussed below) be no indication of unsuitability for trusteeship, and a waiver should normally be granted.
	When the bankruptcy is the result of some form of financial mismanagement, then the risk/reward factors need to be balanced.
	What was the nature of the financial mismanagement?
	What would be the impact of a repetition on the charity/ies which the bankrupt will be authorised to manage by the waiver?
	How high is the risk of such repetition?
	What is the risk to the charity of not granting the waiver?
	Is the waiver sought general or specific to a particular charity or charities? What conditions, if any, should be attached to the waiver?
	All this is considered in more detail below.
5.8 Statutory restrictions on undischarged bankrupts and potential implications for trustees
	There are a number of statutory restrictions on the activities of undischarged bankrupts. Even if we are otherwise content to grant a waiver, we will need to be satisfied that the effect of these restrictions will not be to damage the charity or charities which the bankrupt is to be authorised to manage. For example, section 360 of the Insolvency Act 1986 makes it an offence for the bankrupt - without making certain prescribed disclosures - to obtain credit. If a bankrupt was to act as the trustee of an unincorporated charity there could be difficulties as regards the collective relationship of the trustees with their bankers.
	We are not, of course, ourselves in any position to judge the impact of these restrictions on the operation of a particular charity, but this is a point which we need to put to the trustees in a case where we are otherwise minded to give a waiver. The concern does not extend to the management of charitable companies. In those cases where we are able to give a waiver in the case of the management of such a company, it is, of course, the company, rather than the individual directors, which is in the contractual relationship with the charity's bankers.
5.9 Demonstration of need for the trustee to be granted a waiver to continue to act
	Where the bankruptcy is in the middle range of the culpability spectrum, the applicant will need to show that the risks which his involvement in the administration of the charity/ies poses to the public interest are outweighed by the benefits to the charity or charities concerned which are expected to come from a waiver. The applicant will need to demonstrate that he or she has qualities, skills or commitment which, if lost to the charity, would render it less effective.
	Reference will therefore need to be made to:
	special qualities which the applicant is able to bring to the trustee body;
	particular skills or services he or she is able to render as a trustee;
	an inability to provide these skills or services other than as a member of the trustee body; and
	other special factors which render it in the interests of the charity that he or she remains a trustee.
	In evaluating these factors, the case officer will need to consider how important it is that the applicant remains as a trustee. The applicant may, for instance, be the driving force behind a particular organisation, with potential jeopardy to the future of the charity if a waiver is not granted.
	Alternatively, the applicant may possess expertise which would be beneficial in offering advice or counselling to the beneficiaries of the charity. In that event, it may not be essential for the applicant to continue to act as trustee, since the service could still be offered in an advisory capacity. But it may be considered that as this advice would be so readily available, there is little point in refusing a waiver on this issue if the other factors in the case all indicate that the waiver would be in the best interests of the charity.

6. Disqualification unconnected with bankruptcy
	OG 41 A1 sets out the circumstances under which a charity trustee will be disqualified. The list (other than bankruptcy cases) includes conviction of any offence involving dishonesty or deception, removal by the Commission from being a charity trustee on the grounds of misconduct or mismanagement, and disqualification from being a company director.
6.1 Section 72(4A) cases
	Section 72(4A) of the 1993 Act now provides for persons disqualified for charity trusteeship because of misconduct or mismanagement to be granted waivers, unless there are special circumstances which mean that the Commission would be unwilling to do so.
	There is therefore a presumption that a waiver will normally be granted in such cases. Nevertheless we should still act with caution and take account of all relevant factors including the following:-
	the original disqualification was because there was malicious or criminal intent on the part of the trustee;
	there is evidence to suggest that there is a real risk of the person in question repeating the behaviour which led to the original disqualification;
	there is evidence of the person’s unsuitability as a trustee;
	there is opposition from the other trustees (if there is simply lack of support rather than actual opposition this would need to be considered).
	In these most serious cases, we should consider refusing to grant a waiver, but caseworkers should always take legal advice before doing so.
6.2 Factors to consider in cases other than s.72(4A) cases
	By the very nature of the circumstances giving rise to the disqualification in the first place, we should be cautious about agreeing to a waiver. The Act makes no distinction between a general waiver or a waiver for a particular charity or charities. We should consider very carefully consider the following:
	the factors set out in the checklist in OG 42 X1;
	what led to the disqualification in the first place;
	the length of time that has elapsed since the events giving rise to the disqualification;
	evidence of "good conduct" in the meantime and why it is considered that there is no risk of history repeating itself;
	balancing risks against the rewards of granting a waiver – see section 5.5;
	applying the risk against reward test when considering whether to grant a waiver – see section 5.6. Although this sets out a position in relation to bankruptcy disqualifications the same underlying principles are of general application. Consideration should also be given as to whether there is a higher threshold in assessing the impact of the special circumstances and the risk against reward test if the waiver applied for is general or specific to particular charities.;
	demonstration of the need for the trustee to be granted a waiver to continue to act – see section 5.9;
	whether there is evidence that there are no reasonable alternatives who could be appointed;
	can we place conditions on a waiver? Again consideration should be given as to whether there is a higher threshold in assessing the impact of the special circumstances and the risk against reward test if the waiver applied for is subject to conditions. ; and
	if we grant a waiver after considering these points what would it cover?

7. Views of the other trustees
	In the case of any application for a waiver, we would normally expect all the other trustees to support the application to waive disqualification in relation to one or more specific charities. We need to know from trustees:
	why they believe the charity and the charitable beneficiaries need to have this person appointed as a trustee;
	they should indicate what steps they have taken to find alternatives;
	what special skills does this individual possess which are not otherwise available;
	why the individual cannot advise rather than be a trustee;
	what reassurance they can provide that they will be no risk to the charity or its assets; and
	their views on the impact on the standing of the charity and the integrity of charity generally if the person is free to become a trustee of this charity.
	It is for the applicant to ensure that the written views of his or her co-trustees are made available to us either by being attached to the application or by letters being sent direct to us.
	It is also important that the other trustees should realise that the trustees are jointly responsible for the charity’s property and that, depending on the reason for disqualification, there could be an increased risk of loss if the individual was granted a waiver. In these circumstances the other trustees must be content to have the bankrupt trustee acting with them. We should advise them that they might wish to ensure that, if they are otherwise content, such a trustee should not:
	be the Chairman or Treasurer of the charity;
	be a signatory to the charity’s cheques or have access to the charity’s accounts at banks, building societies etc; or
	have any of the charity’s property vested in him or her.
	This is for the other trustees to decide; although we may impose conditions on a waiver.

Glossary of Terms used in this Guidance
	The following words and phrases are defined in the Glossary of Terms:
	governing document trustees

Index to further related information