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Board member eligibility

Guidance on the eligibility of directors or trustees

Not everyone is qualified or able to be a director or trustee. Here, we consider some of the legal considerations around this issue to bear in mind prior to the recruitment process.

Governing document

Some organisations place restrictions on eligibility around at least some positions on the board. Examples might include:

  • being a member of the organisation
  • election or nomination by the membership or by particular stakeholders (such as geographical areas or sporting disciplines)

Governing documents may also stipulate other reasons for removing or rendering ineligible a board member, such as:

  • non-attendance at board meetings – normally accompanied by a specified number or timeframe
  • being convicted of an offence or offences
  • breaching the code of conduct or otherwise bringing the organisation into disrepute

It is always worth consulting the governing document before embarking on the recruitment of a new board member or applying to become one.

There have always been legal restrictions on who can serve as a board member. These change occasionally and also differ according to the structure or form the organisation takes. The age limit, for example, is 16 years and over to be a director of a company, including companies limited by guarantee and charitable incorporated organisations, or 18 years and over for trusts and unincorporated associations.

Additionally, both company and charity law set out restrictions relating to certain criminal and financial proceedings and covering conduct in the running of organisations.

Individuals can be disqualified from being a company director for failing to meet their legal responsibilities. Courts can make a disqualification order for reasons such as:

  • unfit conduct in the promotion, formation, management or liquidation of a company
  • wrongful trading
  • failure to comply with filing requirements under the Companies Act legislation
  • following conviction for criminal offences (in the UK or abroad) related to the promotion, formation, management or liquidation of a company

Examples of ‘unfit conduct’ include:

  • conduct that seeks to deprive creditors of assets
  • continuing to trade to the detriment of creditors when a company is insolvent
  • fraudulent behaviour
  • failure to keep proper accounting records
  • failure to prepare and file accounts or make returns to Companies House
  • failure to comply with other statutory requirements

The disqualification regime also applies to organisations (and their officers) which are:

  • limited liability partnerships
  • charitable incorporated organisations
  • NHS foundation trusts
  • registered societies
  • incorporated friendly societies
  • banks and building societies
  • further education bodies
  • protected cell companies

In addition, it is an offence for an undischarged bankrupt, somebody subject to a debt relief order or somebody subject to a bankruptcy or debt relief restrictions order or undertaking to act as a director of, or directly or indirectly to take part in or be concerned in the promotion, formation or management of a company, except with leave of the court. Further details can be found in the Insolvency Service’s guidance.

For organisations which are charities, The Charities (Protection and Social Investment) Act 2016 introduced new limits on who can be a trustee and extended the regime to cover senior managers. The Charity Commission’s ‘Automatic disqualification rule changes: guidance for charities’ (January 2018) provides an overview of the new rules.

The full list of criteria that would disqualify an individual from becoming a trustee is a useful guide to what organisations and individuals must check in order to ensure that the board is properly formed. These criteria are:

  • Being underage (see above)
  • Being on the sex offenders register
  • An unspent conviction for an offence involving:
    • deception or dishonesty;
    • terrorist offences;
    • money laundering;
    • bribery;
    • misconduct in public office, perjury, or perverting the course of justice;
    • contravention of certain Charity Commission preventative orders (under s. 77 of the Charities Act 2011); or
    • attempting, aiding or abetting the above offences.
  • Contempt of court
  • Designated individuals under specific anti-terrorist legislation
  • Found guilty in the High Court of disobeying a Charity Commission order or direction
  • Removed from:
    • trusteeship, or as an officer, agent, or employee of a charity by the Charity Commission or High Court for misconduct or mismanagement;
    • a position of management or control of a charity in Scotland for mismanagement or misconduct;
    • being a director under the Company Director Disqualification Act 1986, including Company Directors Disqualification (Northern Ireland) Order 2002;
    • directorship by way of being an undischarged bankrupt; or
    • directorship because there is an outstanding composition or arrangement with creditors which includes an individual voluntary agreement (IVA) and is currently on the Insolvency Services

Charity Commission orders can also disqualify individuals from being trustees.

In addition, HMRC requires trustees and managers of charities claiming Gift Aid to meet the ‘fit and proper persons test’. Factors contributing to HMRC not deeming someone as a fit and proper person include individuals:

  • with a history of tax fraud;
  • with a history of other fraudulent behaviour, including misrepresentation and/or identity theft;
  • whom HMRC is aware has been involved in attacks against or abuse of the tax system; and
  • barred from acting as a charity trustee or company

Charity Commission waivers

A waiver can be given to an individual in respect of a named charity/charities, a class of charities or all charities. The latter, however, is unlikely to be granted due to the risk the sector may face. In considering a waiver, the Commission will:

  • assess the case on its merits;
  • focus on the best interests of the charity or charities involved; and
  • ensure the waiver will not damage public trust or confidence in the sector.

A waiver decision of the Charity Commission can be appealed.

The Commission must provide a waiver when the individual was a trustee, agent, employee or officer of a charity and was removed by the Commission more than five years prior to the application of the waiver.

The Commission cannot provide a waiver where:

  • it would override the charity’s governing document or rules;
  • the individual is or will be disqualified for reasons outside of the automatic disqualification regime; or
  • the charity is a company limited by guarantee or charitable incorporated organisation and the individual is disqualified under Company Directors Disqualification Act 1986, or the Insolvency Act 1986, or failed to pay a county court administration order and those disqualifications are still in place.

The Commission can refuse a waiver when it feels there’s a real risk of repeat behaviour, there is evidence of an individual’s unsuitability for the role, or if the named charity/charities does not support the application.