Clear Legal Advice Cambridge Chelmsford Ipswich Norwich www.birketts.co.uk/charities Essential Trustee September 2017 In this issue New charity Governance Code published Charity Commission issues first official warning using new statutory power Charities refuse to go down without a fight Changes to the Code of Fundraising Practice Spotlight on data protection Answering your questions Trustee Induction & Refresher Training: upcoming dates LinkedIn: Birketts LLP Twitter: @birkettsllp @CharityLegals Welcome to the September 2017 issue of Essential Trustee This newsletter has been written with charity trustees and senior management in mind. It provides you with need-to-know updates on hot topics within the sector. In this edition, we tell you about the new Code of Governance for charities and the Charity Commission’s first official warning issued under the new statutory power. We also discuss the recent decision of the Dogs Trust to challenge the validity of a Will and provide you with updates on changes in fundraising regulations following the recent launch of the new Fundraising Preference Service. We answer more of your questions, focusing in this edition on the question “What is a commercial participator?”. Finally, this edition’s spotlight is on our data protection expert Kitty Rosser and includes information on upcoming training on GDPR. We will be running our next session of Trustee Induction and Refresher Training in Norwich on 21 September 2017, and there is still time to sign up if you have not already done so. More information about our rolling programme of Trustee Training and how to book your place can be found here. This newsletter is available via subscription. To receive future issues automatically, please sign up. We welcome any questions that you might have, or if there are issues on which you would like us to comment please do get in touch. Our aim is to provide a regular newsletter, but if you would like to see news stories as they happen, please follow us on LinkedIn and Twitter. Essential Trustee Sara Sayer Senior Associate, Solicitor-Advocate, Head of Charities and Social Enterprise Team 01223 326763 [email protected] Liz Brownsell Senior Associate, Charities and Social Enterprise 01473 406383 [email protected] Clear Legal Advice Cambridge Chelmsford Ipswich Norwich www.birketts.co.uk/charities Essential Trustee September 2017 New charity Governance Code published On 13 July 2017, the much anticipated new and reformatted Charity Code of Governance was published. The Code is designed to be a ‘practical tool to help charities and their trustees develop high standards of governance’, and is a collaborative project between a number of sector bodies (NCVO, ACEVO, ICSA, Small Charities Coalition, WCVA and the Association of Chairs, with the steering group headed by Rosie Chapman, as independent chair. Compliance with the Charity Code of Governance is not a legal or regulatory requirement; it sets out best practice recommendations for good governance within charities and is ‘deliberately aspirational: some elements of the Code will be a stretch for many charities to achieve’. The steering group has set intentionally high standards, so that the Code may be used as a ‘tool for continuous improvement’ by charities. The Code does not provide guidance on all legal and regulatory requirements and is not intended to be relied upon for that purpose: part of the foundation on which the Code has been drafted is that charity trustees understand their roles and legal responsibilities. The Code does not, therefore, replace or remove the need for proper and continued training for charity trustees. The Code is endorsed by the Charity Commission, whose Director of Policy and Communications (Sarah Atkinson) commented, “the latest edition has raised the bar in response to the challenges that the sector has faced over the last two years”, and stressed how important it is for charity trustees to “get their heads around governance”. The Charity Commission has also withdrawn its guidance document ‘Hallmarks of an Effective Charity (CC10)’, and instead now encourages charities to use the new Charity Code of Governance. The new Code is a major overhaul of the former ‘Charity Governance: a Code for the Voluntary and Community Sector’, which was last published in 2010. The first draft of the new Code was published on 7 November 2016 for consultation (which concluded on 7 February 2017), and Liz Brownsell (Senior Associate in our Charities and Social Enterprise Team) was a member of the Charity Law Association working party that reviewed the draft Code and provided feedback to the steering group. The first draft of the Code included colour coding to indicate which aspects of the Code were only relevant to larger charities. In response to feedback from the consultation, two separate versions of the Code have been published instead: one aimed at larger charities (typically those with an annual income in excess of £1m and whose accounts are externally audited) and another aimed at smaller charities. The rationale behind publishing two versions of the Code is to allow for more specific focus on governance issues relevant to different sizes of organisation. In both versions, the Code is structured around seven core principles of good governance. 1. Organisational purpose: the board is clear about the charity’s aims and ensures that these are being delivered effectively and sustainably. 2. Leadership: every charity is led by an effective board that provides strategic leadership in line with the charity’s aims and values. 3. Integrity: the board acts with integrity, adopting values and creating a culture which helps achieve the organisation’s charitable purposes. The board is aware of the importance of the public’s confidence and trust in charities, and trustees to undertake their duties accordingly. 4. Decision-making, risk and control: the board makes sure that its decision-making processes are informed, rigorous and timely and that effective delegation, control and risk assessment, and management systems, are set up and monitored. 5. Board effectiveness: the board works as an effective team, using the appropriate balance of skills, experience, backgrounds and knowledge to make informed decisions. 6. Diversity: the board’s approach to diversity supports its effectiveness, leadership and decision-making. 7. Openness and accountability: the board leads the organisation in being transparent and accountable. The charity is open in its work, unless there is good reason for it not to be. Liz Brownsell Senior Associate 01473 406383 [email protected] “..the Code is structured around seven core principles of good governance” “The steering group has set intentionally high standards” Clear Legal Advice Cambridge Chelmsford Ipswich Norwich www.birketts.co.uk/charities Essential Trustee September 2017 Charities are expected to ‘apply or explain’. It is not expected that all charities will be able to follow all aspects of the Code (and it might not be appropriate in some cases). However, charity trustees are expected to regularly discuss and consider the principles and recommended practice set out in the Code, and “make well-considered decisions about how these should be applied in their charity”. Transparency is very important within the sector, for public trust and confidence, so charities are encouraged to explain their approach to applying the Code by publishing a brief statement in their annual report each year. For charities working within sectors where there are sector-specific governance codes (e.g. social housing), it is anticipated that those codes will take precedence over the Charity Governance Code, and charities are encouraged to state in annual reports which code they follow. The new Code is a valuable tool for charity trustees, and we have incorporated it into our rolling programme of Charity Trustee Induction and Refresher Training. We would encourage charity trustees to use the Code to assist with governance and strategic reviews. Charity Commission issues first official warning using new statutory power The Charities (Protection and Social Investment) Act 2016 introduced two new powers for the Charity Commission, and on 3 July 2017 the Commission published its first official warning using one of its new powers. The official warning was issued to the National Hereditary Breast Cancer Helpline, after the Charity Commission’s interest in the charity was sparked by proactive analysis of a group of charities identified as being at risk of financial distress: the charity was “randomly selected from the group of 94 charities whose accounts signalled they may be in financial difficulty”. The two new powers are the ‘official warning power’ and the ‘discretionary disqualification power’, both of which came into force on 1 October 2016. In December 2016, the Commission published guidance on the new powers, but there has been speculation as to how the powers will be used in practice. This case is therefore of significant interest, as it provides a practical example of the use of these new powers. On 3 July 2017, the Commission issued an official warning to the National Hereditary Breast Cancer Helpline (and published a case report on its regulatory intervention in the charity). The official warning was issued on the grounds that “the Charity Commission considers that the charity trustees have committed a breach of trust or duty or misconduct or mismanagement in the administration of the charity in relation to making unauthorised payments to a connected person, entering into an informal loan agreement with a connected person, improperly delegating the administration and management of the charity, failing to keep proper minutes and other records of decision making, and failing to properly implement and manage financial controls”. The official warning followed a failure by the charity to implement an Action Plan issued by the Commission on 26 August 2016 in respect of the above identified issues. The Commission carried out a follow up inspection on 18 October 2016 and was “concerned to find that although the trustees had made some progress, they had failed to fully comply with the terms of the Action Plan”. The official warning sets out specific action to be taken by the charity trustees to rectify the issues, and failure to comply with the terms of the official warning could result in the Charity Commission opening a formal s46 statutory inquiry and making use of its full suite of temporary protective powers during the investigation (including the suspension of trustees, officers, agents or staff; appointment of additional trustees; vesting property in the official custodian for charities; freezing bank accounts; and restricting transactions), and permanent protective measures at the end of the inquiry (which include the power to remove trustees, which results in those individuals being disqualified from acting as charity trustees). The Commission only opens s46 inquiries in the most serious cases of regulatory concern, and (since June 2014), publicly announces them when they are opened, so there are significant reputational implications for charities that find themselves the subject of an inquiry. “This case is, therefore, of significant interest, as it provides a practical example of the use of these new powers” Erika Clarke Legal Director 01603 756525 [email protected] Clear Legal Advice Cambridge Chelmsford Ipswich Norwich www.birketts.co.uk/charities Essential Trustee September 2017 This case provides a helpful insight into how the Commission is likely to make use of its new powers, and emphasises the increased scrutiny by the Commission on governance and proper management by charity trustees. During its investigation, the Commission found that unauthorised payments had been made to the chair of trustees for work undertaken in running the day-to-day operations of the charity, and that the chair (as sole authorised signatory on the charity’s bank account) had authorised the payments themselves. The Commission also identified that the trustees had failed to meet regularly, and that the chair made decisions following discussions with individual trustees, with no records kept of those discussions. The third serious issue identified was that a trustee had made interest-free loans to the charity without putting a formal agreement or repayment schedule in place. Following receipt of the Action Plan, the chair resigned as a trustee, but continued to run the charity’s operations without any formal role and continued to receive payments. The trustees held one meeting, but in its follow up inspection the Commission found little evidence that the trustees were taking decisions collectively; in practice they continued to allow the former chair to make key decisions. The trustees had added additional bank account signatories, but failed to implement other measures to protect the charity’s assets with appropriate financial controls. They also failed to formalise the loan arrangements. The case serves as a reminder to charity trustees that once the Commission has intervened and issued an action plan for rectifying issues of mismanagement or misconduct, it is essential to take it seriously and act promptly. The Commission will continue to monitor the charity and might intervene further and escalate its enforcement action if non-compliance continues. In this case, the Commission’s involvement arose as a result of proactive analysis by the Commission of a group of charities that it had identified as having signs that they might be at risk of financial distress. In its case report, the Commission comments that “this is part of our work to proactively monitor charities that fall into certain risk categories”. After being randomly selected from a group of 94 charities, the Commission carried out a detailed investigation into the charity’s accounts, during which a number of additional concerns were raised regarding the management of the charity’s finances. This provides a reminder of the implications of being investigated by the Commission, and the importance of keeping your house in order: the Commission is extremely thorough and will look at everything, not just the specific issue that initially raises a flag for concern. The Commission concludes its case report with a note that “this case demonstrates the importance of trustees being fully aware of their role and responsibilities” Charities refuse to go down without a fight When Ms Leaning died in 2015 she purported to make a Will that left her entire £340,000 estate to her partner, Mr Guest, on the proviso that he look after her three beloved dogs. This Will was handwritten and witnessed by two neighbours. However, under Ms Leaning’s 2007 Will, she had left her entire estate to the Dogs Trust, World Animal Protection, Friends of the Animals and Heart Research UK. Upon Ms Leaning’s death, when the charities became aware that the Will from 2015 was going to be used to obtain a grant of probate, their lawyers entered a caveat to try and prevent this from happening. Whilst there is no official court record relating to this case, it has been reported in the media that the Will from 2015 is being challenged on the basis that the piece of paper with the signature of Ms Leaning and the witnesses on was not attached to the main body of the Will. This suggests that the basis of the charities claim is that the 2015 Will did not adhere to the formalities required by law under section 9 Wills Act 1837. These formalities are that the Will must be in writing, it must be signed by the testator in the relevant place, it must be witnessed by two people and a beneficiary under the Will cannot act as a witness. It is worth noting that in cases such as these, claims often settle out of court as legal fees can quickly escalate. The media has reported that Mr Guest has already incurred fees of £10,000 and that he has offered the charities £60,000 and the house on trust, to settle the case, but that the offer has been rejected. It looks like we will have to wait and see what the court decides before we can find out the verifiable detail of this case. Bernadette Baker Senior Associate 01603 756406 [email protected] co.uk “This case serves as a reminder to charity trustees that once the Commission has intervened, it is essential to take it seriously and act promptly” Clear Legal Advice Cambridge Chelmsford Ipswich Norwich www.birketts.co.uk/charities Essential Trustee September 2017 The charities are getting a certain level of abuse in the media about their decision to challenge the Will of Ms Leaning. However, after the Supreme Court’s decision earlier this year in Ilott v the Blue Cross  in which the court upheld the Will of a lady who left her entire estate to charity, albeit granting the deceased’s estranged daughter £50,000 from the estate, it is understandable that charities now have the confidence to take a stand. Whether you want to make a claim on an estate or whether you are charged with defending a claim on an estate, you need specialist advice. Our Contentious Trust and Probate Team deal with this type of work on a daily basis, and can provide advice not only on this very niche area of law but also on the best strategy and cost effective solution for your case. Changes to the Code of Fundraising Practice On 31 July, the Fundraising Regulator published a new Code of Fundraising Practice, following consultations earlier this year. The new Code includes new obligations for charity trustees and changes to the rules regarding how charities should monitor compliance by third party fundraisers (including professional fundraisers and commercial participators) with their obligations under fundraising contracts. A week ahead of the launch of the new Fundraising Preference Service (FPS), the Fundraising Regulator added some new requirements to the Code of Fundraising Practice to support the new service, as an interim measure whilst consultations on the overhaul of the Code continued. For more information about those changes see our article on the launch of the new FPS. The Code of Fundraising Practice (and the rule books on street fundraising and doorto-door collections) set out the regulatory standards that all charitable fundraising organisations in the UK are expected to meet. In some cases, these standards exceed the strict legal requirements. However, as a result of the increased public scrutiny of charity fundraising activities following Olive Cooke’s death and the subsequent Daily Mail expose (see previous article for more information), the Charity Commission is likely to view any material or persistent breach of the Code as evidence of mismanagement by the charity trustees. This, in turn, could result in the Commission investigating the charity’s governance, fundraising and operational activities and might lead to enforcement action. Compliance with the Code should be taken very seriously by charity trustees, as poor fundraising practice has the potential to seriously damage a charity’s reputation. For the first time, the Code now includes a specific duty for charity trustees to “have regard to national guidance in overseeing the fundraising activities of their charity and any third party fundraising on the charity’s behalf”. We have already seen the Charity Commission take action and declare a breach of trust by charity trustees in respect of a contract entered into by the charity that the Commission said could not reasonably be considered to have been in the charity’s best interests (read more about that in our previous article). It is quite likely that the charity trustees in that case were not even aware of the fact that the contract had been entered into. For many charities, fundraising activities have been historically treated as a purely operational issue, with little oversight or strategic direction by the board. The PACAC review in 2015 highlighted this as a key concern within the sector, and the new duty on charity trustees in the Code of Fundraising Practice is intended to address this issue. Charity trustees should consider what changes need to be made to delegated authority in respect of fundraising, and reporting procedures. Policies should also be put in place regarding which types of contracts require prior board approval. This could include, for example, fundraising contracts involving a significant upfront investment of funds or involving major public campaigns (particularly in respect of any face-to-face fundraising and telemarketing). There is no ‘one size fits all’ approach to this, and charity trustees should consider what is appropriate for their particular charity, given its size and the nature of its fundraising activities. The Code of Fundraising Practice now links directly to the Charity Commission’s fundraising guidance (CC20) and the new Charity Governance Code (read more about the new Charity Governance Code in our recent article), and this change was effective immediately (from 31 July 2017). So, both the Fundraising Regulator and the Charity “Compliance with the Code should be taken very seriously by charity trustees, as poor fundraising practice has the potential to seriously damage a charity’s reputation” “Charity trustees should consider what changes need to be made to delegated authority in respect of fundraising, and reporting procedures.” Liz Brownsell Senior Associate 01473 406383 [email protected] “Whether you want to make a claim on an estate or whether you are charged with defending a claim, you need specialist advice” Clear Legal Advice Cambridge Chelmsford Ipswich Norwich www.birketts.co.uk/charities Essential Trustee September 2017 Commission expect all charities in England and Wales to comply with the Code of Fundraising Practice, the Code of Governance and the Charity Commission guidance in respect of all fundraising activities. Those documents are therefore essential reading for all charity trustees and senior fundraising managers within charities. Another change that came into force immediately was the supplementary guidance on what is expected of charities and other fundraising organisations to effectively and proportionately monitor compliance by third party fundraisers with the Code of Fundraising Practice, statutory obligations under Fundraising Regulations, and contractual obligations. The Code includes guidance on means that might be employed by charities to provide evidence of their reasonable efforts to ensure effective ongoing compliance by third party fundraisers. Suggestions include: establishing a named individual with lead responsibility for monitoring compliance, developing clear reporting requirements and regularly reviewing progress against pre-agreed performance, quality assurance and compliance targets, and regularly conducting (and documenting the results of) call monitoring, mystery shopping, site visits and/or shadowing with third party fundraisers. Other changes to the Code include changes to requirements regarding solicitation statements (regardless of the channel of communication used, a solicitation statement must be delivered before money is given or financial details are requested, whichever is sooner), internal policies and procedures for raising concerns about fundraising practice (all charities must have an internal policy that covers the matters set out in the new Code), and the delivery of collection bags (organisations that operate houseto-house clothing collections may not deliver bags to houses displaying a notice stating “no charity bags” or “no clothing bags” or similar). In respect of these changes, the Fundraising Regulator has granted charities and other fundraising organisations a grace period of 2-4 months to become compliant, in light of the operational changes that will need to be implemented, including staff training and changes to policies and procedures. The Fundraising Regulator has published a summary of the changes made to the Code of Fundraising Practice, and you can read the full Code here. Spotlight on data protection This is where we tell you a bit more about us and the broad range of services we offer to our charity clients.In this edition,we put the spotlight on our data protection services for charities, and tell you more about our data protection expert,Kitty Rosser. Kitty is an Associate in Birketts’ Corporate and Commercial Team and a specialist intellectual property lawyer. Kitty has particular expertise in data protection and advises on all aspects of data protection compliance, including: subject access requests; marketing strategies; handling of data breaches (including responding to complaints by individuals and handling ICO investigation); data transfers; and preparation and implementation of policies and procedures. Kitty has been extremely busy for most of 2017 delivering training and providing audit services for clients on the new General Data Protection Regulation (GDPR), which will come into force in 2018, and will bring about the biggest change to data protection laws in over 20 years. For further information on GDPR, see our article GDPR: the countdown to compliance You can also request a free copy of our guide to the new GDPR by emailing [email protected] Over the summer, in partnership with the Institute of Fundraising, Kitty delivered a national programme of training on GDPR for charities, with a particular focus on the implications for fundraising. We are currently organising more training seminars for late October 2017, across the country, in partnership with another large membership body in the sector, which will be delivered by Kitty with support from Liz Brownsell (Senior Associate in our Charities and Social Enterprise Team). In November, Kitty will be one of the panel members (alongside Gerald Oppenheim, Head of Policy at the Fundraising Regulator, and Daniel Fluskey, Head of Policy and Research at the Institute of Fundraising) for a discussion on ‘GDPR – what compliance means for the charitable sector’, at the IoF East Anglia Regional Conference taking Kitty Rosser Associate 01473 756559 [email protected] “The General Data Protection Regulation guide” Clear Legal Advice Cambridge Chelmsford Ipswich Norwich www.birketts.co.uk/charities Essential Trustee September 2017 place on 13 November 2017 in Newmarket. You do not need to be a member of the IoF to attend: to book your place visit the IoF website. We hope to see you at one of the upcoming training sessions or events. Of course, if the dates and/or locations don’t suit you, we also offer tailored GDPR training under the Birketts Shaping Excellence programme. Answering your questions Question: What is a commercial participator? Answer: The term ‘commercial participator’ is defined very broadly by the Charities Act 1992, and includes any business which engages in any sort of advertising campaign or sales campaign, or otherwise markets an event or product or service where it represents that it will give, either all, or some of the proceeds from that event, or product or service, to a particular charity, or charities or social enterprise(s), or other organisation(s), established for philanthropic or benevolent purposes (provided that the business is not connected with the charitable institution for which it is fundraising). Examples of commercial participators include: where products are sold bearing a charity’s name and logo and the business states that a certain amount from every sale will be donated to that charity; and where a business decides to put on an event (e.g. a gala dinner or festival or concert) to raise money for a particular charitable institution and states that all profits from the event will be donated to that charitable institution. There is a statutory requirement for a legally compliant written agreement to be put in place whenever a charitable institution enters into an arrangement with a commercial participator. The Charity Commission regards non-compliance as evidence of mismanagement by charity trustees. You might also be interested in reading our previous article on the new rules affecting contracts with commercial fundraisers. And, don’t forget to request your free copy of the Birketts’ Guide to recent changes in charity fundraising law and regulation by emailing [email protected] If you require advice on any proposed arrangements with commercial organisations, please get in touch with Liz Brownsell or another member of the Charities and Social Enterprise Team. “Charity Fundraising guide” Clear Legal Advice Cambridge Chelmsford Ipswich Norwich www.birketts.co.uk/charities Essential Trustee September 2017 Training for Trustees: Charity Trustee Induction and Refresher Training Do your trustees: • understand the nature and extent of their role within your charity? • have a good understanding of their legal duties and responsibilities as charity trustees? • know the extent of their potential liabilities and how to effectively protect the charity from risk? • understand how charity law and regulation affects the charity’s operations and financial success? • know and understand their responsibilities in relation to staff and volunteers? Aim This course provides charity trustees with essential legal training to enable them to comply with law and best practice in fulfilling their duties and furthering the success of the charity. It is vital that all charity trustees and senior managers within charities know and understand the role, duties and responsibilities of trustees. The Charity Commission expects all charities to include in their Annual Report the steps that have been taken to ensure that all trustees have received appropriate training. This course provides a cost effective way to achieve this, as it is aimed at providing trustees with the essential training required to effectively carry out their roles. The course is run four times per year in each of the office locations to allow you to plan ahead and ensure that all incoming trustees (and any other trustees wanting a refresher) are trained, so that your charity may comply with best practice and fulfil its annual reporting obligations. Learning outcomes The objective of this half-day workshop is to ensure that delegates: • understand the key elements and make-up of their charity’s governing document and why it is important • appreciate the extent of their legal duties and how to comply with them in accordance with best practice • understand personal liability and how best to manage risk • are aware of the main reporting obligations and regulations with which the charity must comply • have a basic understanding of financial reporting and how the law affects matters such as investment and reserves • understand the extent of the role of a charity trustee in relation to staff, including in respect of recruitment, management and dismissals • are able to distinguish between employees, workers and volunteers and understand the key pitfalls to avoid when dealing with volunteers. Book your place 21 September 2017 - Norwich 23 November 2017 - Chelmsford 13 March 2018 - Cambridge Birketts also offers various in-house training modules for charities. Please visit our Shaping Excellence page for further information. Introducing the trainers Liz Brownsell Liz joined Birketts in October 2016 and leads on non-contentious work within the firm-wide charities and social enterprise group. Liz has over six years of experience as a charity law specialist, following five years as a corporate lawyer in the City. She is an experienced public speaker and has delivered trustee training for many years. Her expertise and experience in advising on all nature of governance issues, coupled with her involvement and interest in sector development and her experience as a charity trustee, means that she has a high level of specialist knowledge and can ensure that delegates leave our training workshops feeling informed and prepared for the important role of running their charity. Sonya O’Reilly Sonya is a Legal Director in our employment team. She provides specialist employment advice to employers and senior executives in all aspects of employment law. As part of the firm-wide charities and social enterprise group, Sonya advises our charity clients on the full range of employment issues. Sonya also provides both in-house and public training on many employment-related topics through Birketts’ Shaping Excellence programme. She has an excellent reputation as a public speaker and can make difficult concepts sound easy.