MANAGING CONFLICTS OF INTEREST

All charity trustees need to be very careful about managing conflicts of interest. The situation is more complex for charity trustees where the trustees are also directors, typically of a company limited by guarantee.

For companies, the current rules which have been drawn up in a series of court cases, are being replaced in the Companies Act 2006 by clear statutorily defined duties. These include:

Duties to avoid conflicts of interest;
Not to accept benefits from third parties;
To declare interests as well as other areas.

Beyond the normal conflict where a trustee has a financial interest in a transaction, many trustees face a conflict because they are also involved in some other organisation with whom the charity deals, for example, the local authority or some other funder or a sister charity operating in the same field. What the 2006 Act says is that the director trustee must avoid a situation in which he has or can have a direct or indirect interest that conflicts or possibly may conflict with the interests of the company. If such a situation arises, for example, a trustee of a grant making charity is also a trustee of a potential recipient, the Act says that the transaction can go forward where the other directors authorise it, provided that the charity’s constitution includes a provision enabling them to authorise going forward where there is a conflict. Unfortunately it is virtually unknown at present for charitable companies to have such a provision.

There is another way of authorising a transaction where a director is conflicted and that involves the rather cumbersome route of obtaining the approval of the members of the company. But this route can only be used if the charitable company’s articles allow. Again, in practice they rarely cover such an arrangement.

Charities which are companies therefore need to give urgent consideration to amending their memorandum and articles to deal with this situation. Otherwise, trustees will find themselves in an apparently insoluble dilemma.

(Sections 75 – 77 and Section 80 Companies Act 2006.)

For further information, please contact:
JAMES SINCLAIR TAYLOR on 020 8394 6480 or James.Taylor@russell-cooke.co.uk

ENGLISH CHARITIES OPERATING IN SCOTLAND

You will have seen from previous updates that it takes surprisingly little activity in Scotland to require a charity registered with the English Charity Commission to have to register with the Scottish Regulator OSCR.

This involves significant additional regulatory burdens. That burden has now grown heavier as OSCR are now asking dual registered charities to change the clause governing the distribution of their assets so that distribution must be to a charity that is charitable under both English law and Scottish law. While at present Scottish law is very similar to English law, it is likely to diverge, possibly quite radically, over the coming years. A dual registered charity with very small operations in Scotland might in future be prevented from distributing its assets to an organisation which is recognised in England and Wales as charitable, but not recognised as charitable in Scotland.

For most charities, this change is going to require both the Charity Commission consent and complying with their own constitutional change procedures, so it is not going to be without cost. If you are being required to make this change OSCR has now agreed to defer requiring compliance while discussions take place between them and the Commission. Our advice is to wait and see.

For further information, please contact:
JAMES SINCLAIR TAYLOR on 020 8394 6480 or James.Taylor@russell-cooke.co.uk

HELP FOR SOCIAL LANDLORDS

About a year ago we reported on the case of Riverside Housing Association Limited v White.

The facts were that Riverside let a flat to Gary and Ellen White in St Helens. The lease contained an annual rent review clause, allowing the rent to be reviewed in June provided four weeks’ notice was given. In order to align their procedure with Housing Corporation and local authority practice, Riverside changed the review dates from June to April. The Court of Appeal in 2006 held that Riverside was not entitled to move the rent review dates. This decision had very important and potentially expensive consequences for how landlords manage their properties.

The House of Lords has now reversed the Court of Appeal’s decision. The main judgment is significant because it comes from Lord Neuberger, the newest law lord and a property specialist.

The decision of Lord Neuberger was that the rent review provisions within the lease were ‘unsatisfactory’, in that they were not well drafted. Nevertheless, Lord Neuberger held that the relevant rent review provision had been interpreted too narrowly in the Court of Appeal, when they decided that if a rent review did not take place on 1 June in any year, Riverside had lost its chance to review the rent for a whole year. He held that it could be read to mean that a rent review could take place at any time in a year after 1 June, provided that four weeks’ notice was given.

Lord Neuberger differentiated Riverside’s situation as a social landlord and a charity, from what he described as ‘the normal commercial context’ of business rent reviews. Not all landlords, even those that social landlords and/or charities, can expect such sympathetic treatment at the hands of all judges. The lessons of the Riverside case are twofold: firstly consider what the terms of current tenancies are very carefully, especially those that are perhaps getting old, or do not reflect the actual current arrangement with a tenant; and, secondly, take advice before implementing any changes to the scheme of a tenancy or tenancies, however minor such changes might appear.

For further information, please contact:
PAUL GREATHOLDER on 020 7440 4824 or Paul.Greatholder@russell-cooke.co.uk

SECTION 36 OF THE CHARITIES ACT 1993 – AN OUTLINE FOR SURVEYORS

Valuers advising charity clients should be aware of the specific rules on dispositions contained in section 36 of the Charities Act 1993. We have prepared a flow chart to assist valuers and charities in ensuring that the correct procedure is followed. The flowchart can be found on our web-site at

www.russell-cooke.co.uk/downloads/flow_chart_charities_surveyors.pdf

For further information, please contact:
JAMES McCALLUM on 020 8394 6481 or James.McCallum@russell-cooke.co.uk

ANNOUNCEMENT:

Please note that Russell-Cooke will be converting to a limited liability partnership (“LLP”) on 1 July 2007.

The change will not affect the service provided to clients who will continue to work with the same lawyers as at present.

If you have any queries about the conversion please contact the lawyer you usually deal with.

DIARY DATES:

Annual Trustee Conference

Thursday 21 June, the Royal Society of Arts, London. For further information please see our brochure at:

www.russell-cooke.co.uk/downloads/Trustee_Conference_2007.pdf

Employment Conference

Thursday 28 June, Directory of Social Change, London NW1 2DP. For further information please see our brochure at:

www.russell-cooke.co.uk/downloads/Employment_Law_Conference_07WEB.pdf

OTHER EVENTS:

For a full list of forthcoming events see the Charity Team’s web-site at:
http://www.russell-cooke.co.uk/serv_charities_events.htm

The Charity Team
Russell-Cooke Solicitors, 2 Putney Hill,
Putney, LONDON
SW15 6AB

Tel: 020 8789 9111
www.russell-cooke.co.uk

This material does not give a full statement of the law. It is intended for guidance only, and is not a substitute for professional advice. No responsibility for loss occasioned as a result of any person acting or refraining from acting can be accepted by Russell-Cooke.

To subscribe to this monthly legal update please visit http://www.russell-cooke.co.uk/serv_charities_intro.htm and fill in the online request form, or send an email including your name and email to, charitylegalupdates@russell-cooke.co.uk

An archive of past updates can be found at http://www.russell-cooke.co.uk/serv_charities_updates.htm

If you would like to reproduce some or all of our updates in your own publication, contact Shivaji Shiva on 020 8394 6486 or e-mail on shivas@russell-cooke.co.uk

MAY 2007