Charities Act 2006

Charities Act 2006

The Charities Act gained Royal Assent on 8th November 2006 and is due to come into force in early 2007.  The Commission have provided a guide to the main provisions on their website.  Trustee Indemnity Insurance is specifically mentioned:

Trustee indemnity insurance

Trustee indemnity insurance covers trustees from having to personally pay out when claims are made against them, such as health and safety breaches which cause an employee injury, as long as the mistake was honestly made and not the result of wilful misconduct.

In practice, trustees are not held liable in this way for honest mistakes but anxiety about the possibility may have made people reluctant to become trustees. There was also the issue that the charity’s funds should not be used to pay for insurance which would benefit trustees.

The Act allows trustees to take out trustee indemnity insurance using the charity’s funds without the permission of the Charity Commission, as long as there is no provision in the charity’s governing document which specifically forbids this. If there is a specific prohibition in the charity’s governing document then trustees will need to amend this with the Charity Commission before they can buy trustee indemnity insurance.

Relief from personal liability for trustees

Recruiting new trustees can be made harder if potential trustees are worried they may be personally liable for mistakes they make which put the charity’s assets at risk. Before the Act, only the courts could relieve trustees of this sort of liability.

The Act allows charity trustees to apply to the Charity Commission, as well as the courts, for relief from personal liability for a breach of trust where the trustee has acted honestly and reasonably.

This obviously only applies where mistakes have been honestly made. The Commission and the courts will still take deliberate breaches of trust by trustees very seriously.

Source: Charity Commission website version November 2006 and is reproduced here in accordance with their Copyright Statement.

Our comment

This is good news for charities. With the general environment being increasingly litigious, charity trustees need to protect themselves against allegations of wrongful acts. Even if there is relief from personal liability for trustees the cost of defending actions may still be there. Trustee indemnity insurance provides defence costs against these allegations of a wrongful act by trustees.

If you wish to discuss any issue with an adviser, please call 08702 412214 or request a call by leaving your contact details here.

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