Charity Commission publishes report on charity loan to football club and conflicts of interest

March 02, 2012 | By: .(JavaScript must be enabled to view this email address) Mark Blumberg
Topics: News

The Charity Commission of England and Wales published a report on a charity loan to a football club.  “The Commission’s investigation concluded that the charity trustees had not met their legal duties and responsibilities as trustees, including the need to safeguard the charity’s funds and apply them for the proper purposes of the charity.  It also concluded that the trustees, all of whom had links to or interests in Plymouth Argyle FC, had not properly managed their conflicts of interest. In these particular circumstances, the Commission concluded that the trustees had placed the interests of the charity secondary to those of the football club. The Commission is critical of the trustees for allowing the situation to arise, but found they have since done everything expected of them to rectify it.”  Many of the same principles would apply in the Canadian context.

Here is the summary:
http://www.charitycommission.gov.uk/RSS/News/pr_plymouth.aspx

Here is the full report:
http://www.charitycommission.gov.uk/Our_regulatory_activity/Compliance_reports/RC_reports/rcr_plymouth.aspx


Here is the conclusion:

“Conclusions

38. The Commission concluded that the trustees’ decision to lend £330,000 of charitable funds to PAFC did not appear, in the circumstances, to be one which a reasonable body of trustees could have made. In addition, the trustees did not take adequate security to safeguard the charitable funds lent. As they did not follow the terms of the charity’s governing document, it was not a proper exercise of the trustees’ investment powers.

39. The Commission took the view that if the trustees had taken professional advice, followed the charity’s governing document, properly evaluated the security of Home Park and considered the risks to the charity, the trustees would have been in a better and informed position to assess whether the loan to PAFC of £330,000 was in the best interests of the charity.

40. The trustees did not properly manage conflicts of interest. Given the nature of their personal interests and the number of trustees this affected, this called into question whether the trustees had met their duty to manage conflicts of interests and affected whether they could demonstrate that the decision to lend to PAFC was in the best interests of the charity. The Commission concluded that, when faced with the possible administration and liquidation of the football club they all supported or had an interest in, the trustees placed the interests of the charity secondary to those of the football club.

41. The Commission concluded that the trustees had not met their legal duties and responsibilities as trustees including the need to safeguard the charity’s funds and to apply them for the proper purposes of the charity.

42. However, the trustees took appropriate steps to mitigate the position they found themselves in and sought recovery of the charity’s money. The trustees have taken appropriate steps to prevent this happening again by developing and implementing a number of policies, which if properly followed, should help safeguard the assets of the charity in the future.

43. The Commission is critical of the trustees for allowing this situation to develop in the first place but found that the trustees did everything that could be reasonably expected of them to rectify the situation.”

Here are the “Issues for the wider sector”:

“The purpose of this section is to highlight the broader issues arising from the investigation that may be of relevance to other charities. The areas covered by this guidance are not intended as further comment on the charity or any of the other parties mentioned in this report in addition to the findings and conclusions set out in the earlier sections of this report, but are included solely on the basis of their wider applicability and interest to the charity sector.

51. Charities are independent entities that exist to assist their beneficiaries. Where charities may be linked to professional sports clubs, the trustees must remember that the interests of the charity must be placed at the forefront of their decision making. Trustees must actively manage any conflicts of interest. It is vital that trustees avoid becoming involved in situations in which their personal interests may be seen to conflict with their duties as trustees. The trustees should put in place policies and procedures to identify and manage such conflict.

52. Charitable funds must only be used to further the charity’s purposes. If charitable funds have been misused then charity trustees are expected to take reasonable steps to identify what has happened to the funds and consider what course of action is reasonable, seeking professional advice as appropriate. Trustees may approach the Commission for formal advice under section 29 of the Charities Act.

53. It is essential that the trustees are familiar with and follow the governing document of the charity and its requirements. All decisions concerning the charity must be taken by the trustees in accordance with their governing document and must be made collectively as a trustee body. Trustees are not carrying out their duty to the charity if they place the interests of other bodies ahead of those of the charity and the Commission considers this an example of poor governance which may be used as evidence of mismanagement.

54. When making decisions and exercising their discretionary powers trustees must:
act within the range of decisions which a reasonable body of trustees could make;
act within the powers conferred upon them and the established rules and procedures for dealing with issues of that kind;
act in good faith and with integrity, avoiding any personal advantage or conflicts of interest;
adequately inform themselves in order to make the decision in question;
act objectively and not take into consideration any factors which it is not proper for them to take into account; and
consider fully all factors which they should take into account.

55. Charities have a responsibility to ensure that their own reputation, and the good name of ‘charity’ in the public’s perception, is not brought into disrepute by inappropriate activities, or association with inappropriate organisations or individuals.

56. Trustees have overall responsibility for the investment of a charity’s funds and a crucial role to play in making strategic decisions about how to use a charity’s assets to achieve its aims. Trustees must therefore:
use their skills and knowledge in a way that is reasonable in the circumstances as they owe a duty of care;
consider how suitable any investment is for their charity;
consider the need to diversity investments;
take advice from someone experienced in investment matters;
review investments; and
consider all relevant legal requirements.

If trustees can demonstrate that they have considered the relevant issues, taken advice where appropriate and reached a reasonable decision, they are unlikely to be criticised for their decisions.”

 

 

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Mark Blumberg is a partner at the law firm of Blumberg Segal LLP in Toronto and works almost exclusively in the areas of non-profit and charity law.

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