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Spotlight on charity law

Louise Thomson gives a break down of the triple responsibility that independent, state funded academies have under education, charity and company law

Posted by Hannah Vickers | July 14, 2017 | People, policy, politics

By Louise Thomson, Head of Policy (Not for Profit) at ICSA: The Governance Institute 

Independent, but state funded, academy schools are charitable companies limited by guarantee. As such, they are required to comply with legislation and regulation that applies to charities and companies, as well as to schools. This triple responsibility is not always given equal weight, however, to the detriment of good governance in the sector. 

Much of the documentation and guidance aimed at academy boards focuses primarily on education legislation, with the roles of charity trustee and company director underplayed. Although the duties required of each role – governor, trustee, director – may not be hugely different, it is important to know about the specific duties of each and to remember them when making decisions. After all, the main differences in practice will be the very information that is required for regulators and the public to demonstrate accountability.

The role of trustees

Whatever the term used within a charitable organisation or academy, if an individual, along with a number of others in the same position, is responsible for the overall control and strategic direction of the charity, under the legal framework, that person is a trustee.  

The Charities Act 2011 defines trustees as “…The persons having the general control and management of the administration of a charity” (s177).

While academies are exempt from registering with the Charity Commission, they are still subject to significant areas of charity law, though compliance with them will be predominantly monitored by the academy’s principal regulator: the Department for Education (DfE). Academy trusts should therefore support the board in understanding their legal duties under this triple requirement of education, charity and company law. 

Unlike the duties of directors, the legal functions of charity trustees are not codified in one piece of legislation. Instead, duties have developed from legislation, common law and case law. CC3 The Essential Trustee from the Charity Commission details the responsibilities of charity trustees as being to:

  • Ensure your charity is carrying out its purposes for the public benefit,
  • Comply with your charity’s governing document and the law,
  • Act in your charity’s best interests,
  • Manage your charity’s resources responsibly,
  • Act with reasonable care and skill,
  • Ensure your charity is accountable.

Under Part 10 of the Companies Act 2006, there are specific legal duties placed upon company directors. For trustees and directors of charitable companies, such as academy schools, therefore, there are additional duties to fulfiDuty to act within powers,

  • Duty to promote the success of the company,
  • Duty to exercise independent judgement,
  • Duty to exercise reasonable care, skill and diligence,
  • Duty to avoid conflicts of interest,
  • Duty not to accept benefits from third parties,
  • Duty to declare interest in proposed transaction or agreement. 

As exempt charities with a principal regulator, the Charity Commission must consult with the Department for Education before using any of its regulatory powers in relation to academies. The powers at the Commission’s disposal include its enabling powers to provide advice and permissions (for instance to change the charitable objects of the academy), and any powers the articles of association or other legislation confer on the Commission.

It is imperative that trustees are aware of, and abide by, their duties under education, charity and company law

The Commission can only open a statutory inquiry where the principal regulator asks it to and there is a Memorandum of Understanding in place between the DfE and the Commission to cover such situations.

When inducting new trustees and providing ongoing training and development to all board members, it is essential that due consideration is given to covering the legal duties arising from a range of legislation and regulation.While each trustee is not expected to be an expert in every aspect of the legislation covering the operations of an academy, it is imperative that they are aware of, and abide by, their duties under education, charity and company law. Failure to do so has potential consequences for the academy and individual trustees.

ICSA guidance for the academy sector can be downloaded for free on their website.

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