Red flags: How to identify and manage potentially invalid Trustee appointments or invalid trustee decisions and ratify past acts made without authority

Many smaller charities encounter issues around historic appointments and retirements of trustees that were never legally effective in the first place. Often these (seemingly innocuous) technical issues are only identified long after the event, when the charity is examining a significant transaction (perhaps when seeking to appoint a new trustee, exploring a merger or dissolution, considering a property sale or undertaking a periodic governance review) or when a third party is undertaking due diligence on the charity ahead of a significant transaction (e.g. when raising property finance) and asks the seemingly simple question: “please confirm that you have all been validly appointed as charity trustees”. Once identified, this type of issue must be swiftly addressed.

This issue can arise across a wide range of charity structures, including charitable trusts, charitable companies, CIOs, and unincorporated associations. Common causes include failing to follow a governing document’s appointment provisions in full, overlooking required consents, using incorrect forms of documentation (an improperly passed resolution, inquorate meeting or defectively signed Deed or trying to confirm a new trustee appointment by email), or by not complying with precise statutory requirements relating to trustee retirement and replacement. If the correct procedures have not been followed, individuals who believe they are charity trustees (even those listed on the Register of Charities) may not actually hold office validly, potentially calling into question years of decisions and historic transactions and also jeopardising the significant transaction that the charity is currently focussing on.

Why does it matter?

The consequences can be significant:

• questions could be raised over the validity of past (and present) trustee decisions made without formal authority: decisions, distributions, appointments, delegations, or transactions approved by that board could potentially be challenged.
• difficulties with banking arrangements could arise.
• potential regulatory engagement could result in a regulatory enquiry being opened into the wider administration of the Charity.
• an increased risk of disputes could arise between trustees and members as they are uncertain who actually controls the charity.
• potential reputational risks for both the charity and its trustees.
• potential increased personal liability exposure for those involved as a result of those unauthorised decisions.

What should trustees be checking?

The starting point is the charity’s governing document. The Charity Commission’s “Essential Trustee” guidance (CC3) reminds all charity trustees that they must comply with both their governing document and the law. Trustees should therefore verify how appointments, reappointments, retirements and removals are supposed to occur for their specific charity and confirm that the specific process has been followed on every occasion.  In practice, warning signs that all might not be as it should be include:

• missing appointment or resignation documents, or differing formats of documentation being used for differing trustees;
• trustee terms that expired without formal reappointment or term extension;
• inadequate minutes that do not cover trustee terms, changes, reappointments or declarations of interest or that do not expressly state the relevant quorum provisions have been complied with;
• when decisions to make changes were made
• appointments made by the wrong person or body;
• trustees cannot produce copies of their signed trustee eligibility declarations or meeting minutes referring to their appointment;
• trustee numbers falling below constitutional requirements;
• failures to obtain member approval where required; or
• discrepancies between Charity Commission records and the internal records of the charity (and for incorporated charities, those records at Companies House).

Can problems be fixed?

In most cases, yes – but the right solution will very much depend on the charity’s precise structure and the form of the specific defect that has been identified. In the first instance trustees should seek legal advice to confirm whether they can resolve matters using their own powers (those set out in their specific governing document or in statute). Some issues can be corrected prospectively by carrying out the appointment process correctly and certain acts can also be ratified depending on the precise form of the charity’s governing document. However, the Trustees may not be able to validate all decisions made before the defect was discovered.

Importantly, charities do now have an additional potential remedy available to them that should be easier to use than other Charity Commission and Court powers: since March 2024, s184B of the Charities Act 2011 allows the Charity Commission, in appropriate cases, to resolve uncertainties and confirm defective trustee appointments and validate certain past acts of invalidly appointed trustees.  The Commission will generally expect charities to use any available constitutional or statutory remedies themselves before seeking regulatory intervention in this way. Any engagement with the Commission should also be carefully managed as they may consider opening a regulatory enquiry if the issues being experienced bear the hallmarks of wider mismanagement of the charity.

A governance issue that should not be ignored

The Charity Commission’s guidance on trustee decision-making (CC27) stresses the importance of acting within powers, following the governing document and maintaining proper records. The validity of trustee appointments sits at the heart of all three principles.

If your charity has concerns about historic appointments, missing paperwork, questions around the validity of historic trustee retirements, governance irregularities, or uncertainty over whether past decisions were made by a properly constituted board, early legal advice can help to prevent a manageable issue becoming a serious regulatory incident or governance problem.

A governance health check now could save considerable cost and risk later. If you are concerned that your charity may have defective trustee appointments or retirements, please contact us for specialist advice tailored to your circumstances and your specific charity’s governing document on regularising your charity’s affairs. We can help you to assess past decisions, resolve matters using the powers that you have available and, where necessary, engage effectively with the Charity Commission to put matters right.

Even if no actual issues are identified during the course of your governance review, future risks of such an issue arising could be mitigated by trustees making changes to your governing document that modernises how appointments are made and adds in useful saving provisions that will protect future trustees and preserve the validity of trustee decisions in the future.

How we can help

If you would like advice on whether your charity is complying with the updated guidance, please get in touch with our charities team.