When money is tight and borrowing expensive, good governance can be crucial to guiding the institution and providing an appropriate level of scrutiny. However, being a university trustee is not without its risks, including the risk of personal liability.
In this article, we use the term “trustees” to mean the charitable trustees of the university. The charity trustees are the persons having the general control and management of the administration of a charity, irrespective of title (in a university context, the charity trustees are often called governors or council members).
How may trustees best protect themselves?
1 Know your duties
The Charity Commission sets out 6 key duties for all charity trustees (https://www.gov.uk/government/publications/the-essential-trustee-what-you-need-to-know-cc3/the-essential-trustee-what-you-need-to-know-what-you-need-to-do):
- Ensure the charity carries out its purposes for the public benefit;
- Comply with the charity’s governing document and the law;
- Act in the best interest of the charity;
- Manage the charity’s resources responsibly;
- Act with reasonable care and skill; and
- Ensure the charity is accountable.
2 Good governance should trump liability
Trustees will not normally be liable for liabilities incurred by a university in pursuance of its charitable purposes: those are liabilities of the university alone.
A trustee may be personally liable if they have acted in breach of trust or duty and the university has suffered loss as a result.
Trustees who have acted in good faith are unlikely to be held personally liable. Under charities legislation, trustees who have acted honestly and reasonably and ought fairly to be excused may be relieved from personal liability by the Charity Commission. No such leniency should be expected where loss is caused to a charity by a trustee’s deliberate or reckless breach.
Good governance should trump liability. If trustees:
- duly consider their charitable duties;
- seek professional advice where needed; and
- minute the consideration of their duties,
it would be difficult to prove that the trustees had acted outside of their duties.
3 Consider indemnity insurance
Under the Charities Act 2011 trustees can purchase indemnity insurance from charity funds, notwithstanding that this would be a personal benefit.
Insurance may be purchased if trustees are satisfied that it is in the best interests of the charity. However, there are certain exclusions as to what can be covered (e.g. where the liability arises out of conduct which the trustee knew (or must reasonably be assumed to have known) was not in the charity’s interests, or where the trustee did not care whether or not it was in the charity’s best interests).
4 Duties are likely to shift on insolvency
Under the Insolvency Act 1986 (the “Act”), if the directors of a company allow it to continue trading beyond the time when they knew or ought to have known that there was no reasonable prospect of the company avoiding insolvent liquidation, they can be held personally liable for the debts incurred.
Most universities are not companies so it is unclear which insolvency processes would apply to them. Given the risk of personal liability, trustees should proceed as if the Act applies. However, given the legal uncertainty in this area, it is vital that universities seek advice if they are in serious financial difficulty.
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