Charity board directors - New legislation on the way

On charity boards, in addition to all the usual legal and regulatory requirements we are familiar with in the commercial landscape, directors also have to be cognisant of the duties and obligations that apply to them in Charity law, where they are known as “charity trustees”.

Charities have taken significant steps in recent years in professionalising and upskilling their boards on their charity trustee duties. Anyone presently occupying such a board seat will therefore be very interested in a significant forthcoming legal change – the first amendment of the Charities Act 2009.

The landmark Charities Act 2009 came into force in late 2014. Almost a decade later, a new Charities (Amendment) Bill 2023 has now been published and is intended to become law later this year. The Bill proposes to adapt, update, and substantially amend the Charities Act 2009.

The Bill is lengthy and detailed and proposes a wide variety of amendments to the Charities Act 2009. It is important that all Charities and their directors engage with the new rules, so as to be sufficiently prepared for the new legislation taking effect. Here we highlight some of the key proposed amendments that directors serving on charity boards need to know.

Duties of Charity trustees

The Bill contains the first statutory statement regarding the duties of charity trustees. The statement echoes the principles laid down in guidance issued by the Charities Regulator and, for the most part, will come as no surprise to charity trustees. The statement includes the duty to act in good faith in what is considered to be the best interests of the charity, to exercise care, skill and diligence, and to act honestly and responsibly in the advancement of the charitable purposes.

Where a charity becomes aware that a breach of one of the trustee duties has occurred, it must endeavour to remedy the consequences of that breach as soon as practicable.

Conflicts of interest and juggling "hats"

The duties of charity trustees include a proposed duty to avoid any conflict between the charity trustee’s duties to the charity and his or her other interests, including personal interests.

The wording reflects the high standard of accountability for charity trustees. However, due to the nature of charity trusteeship as a voluntary role, those sitting on Charity Boards will inevitably occupy multiple roles and wear different “hats”, as they go about their personal, professional, and voluntary endeavours. For this reason, this newly codified duty is one that all Charity board directors will need to be keenly aware of.

Clarity in relation to "arrangements" between board members and a charity

In a similar vein, the Bill maps out a framework under which "arrangements" for remunerated work can be made with charity trustees, with the prior approval of the Charities Regulator. Such arrangements could include the provision of goods or services but will not include a function ordinarily carried out by a charity trustee (i.e. sitting on the Charity Board, which is not generally a paid role).

The same section of the Bill (s88) also addresses an anomaly previously faced by certain charity boards in the education, health, and public sectors, who were required by legislation to have employees on their boards, while charity law principles militated against this. The Bill introduces welcome clarification that certain charities in these categories will now be permitted to pay those employees while they also serve as charity trustees.

Mandatory notifications to the Charities Regulator

One section of the Bill which is likely to be widely debated around the Charity board table is the section dealing with notifications to the Charities Regulator. Several such circumstances are outlined within the Bill, and the interpretation of these by both the Charities Regulator and Charity boards in the years to come, will be of great interest and importance to Irish charities. This is particularly the case because of the sanctions provided for in the case of non-compliance.

Events where a notification to the Charities Regulator will be legally required include where it is “proposed” to wind up a Charity. The wording used here suggests that the obligation applies, even where no actual board decision on wind-up has yet been taken. Other notifications include where a charity breaches a condition attached to its charitable registration, where information provided in respect of a charity trustee in the context of the charity registration ceases to be correct, or where a charity trustee is appointed or resigns.

There is also a provision empowering the Charities Regulator to issue codes of conduct or guidelines on how a Charity board must manage a “significant event”. It is possible that these guidelines, in due course, will provide that Charities should notify the Charities Regulator if a significant event occurs.

The definition of “significant event” has been hotly debated during the development on the Bill, and it is now defined in the Bill as a substantial reduction or loss in assets, substantial damage to property, or an event or situation that places the Charity or its reputation at significant risk. This last heading is likely to be the most considered by Charity boards.

Company Secretary

Due to the current wording of the Charities Act 2009, the company secretary of a charitable company is currently automatically deemed to be a charity trustee. This means that the company secretary cannot be a paid employee or receive any remuneration from the charity. This is an issue that continues to cause confusion across the sector. Welcome clarification is included in the Bill to confirm that, once enacted as law, a company secretary will no longer be classed as a charity trustee, where they hold no other office in the charity.

Constitutional amendments

Another welcome clarification in the Bill is that, in addition to the existing requirement to seek consent to a charity’s change of name, in future, only amendments to the charitable purpose or specified clauses of a charity’s constitution will require prior consent from the Charities Regulator. This has been greatly welcomed by the sector, particularly considering the provision outlined in the original form of the Bill published in 2022, which would have required that any change to a Charity’s constitution, (however immaterial) required advance Charities Regulator approval. The Bill demonstrates a more proportionate and appropriate level of regulation. Boards should note that, once again, failure to comply with these requirements will be an offence.

Financial reports

On financial reporting, the Bill proposes several positive changes, including removal of the exemption for charities that are companies from the requirements in relation to the keeping of books, and an increase in the threshold requirement for full accounts from €100,000 to €250,000. It also paves the way for the future introduction of SORP reporting requirements, for charities that are companies.

The Bill has now completed Dáil Éireann, Second Stage, and will next move to Committee Stage. The MHC Charities team have prepared an informal consolidation of the Charities Act 2009 (available on request at no charge to charities). We will continue to track closely with the Bill’s progress through the legislative stages, where further amendment to the proposed legislation remains a possibility.

The author would like to thank her colleagues Naomi Clarke and Teya Tikaradze for their help in the preparation of this blog.