Charity Law-Dealing with the Death of a Charity
Dealing with the Death of a Charity by Joanne McInerney Solicitor & Notary Public
The Irish Times March 2012
Like all bereavements, the end of a charitys life can be a distressing and complicated time, not least because of the legal pitfalls and governance issues surrounding same.
With the onslaught of the economic recession in Ireland, many charities experiencing a drought in their financial resources and income generating activities have had to deal with the winding up of their charities. The death of a charity can leave donors, beneficiaries, directors and trustees alike reeling in the aftermath with the accountability and governance post-mortem that is bound to be carried out.
The directors or trustees of a charity which has become insolvent or bankrupt today face increasing obligations and responsibilities to make sure that all measures have been correctly adopted to ensure that the members of a charity and its remaining assets are protected and distributed as equitably as possible.
The introduction of the Irish Charities Act, 2009 saw a renewed and clearer level of guidance albeit mandatory for the two main types of charities in Ireland, that of the incorporated charity and the charity governed by trust documentation. The failed enactment to date of this statute however has left an unsatisfactory and arguably discriminatory division between these two types of charities in respect of the directors and trustees accountability requirements and the levels of statutory duties to be imposed upon them.
Further to this, although the Charities Act, 2009 sets out the procedures involved within the proposed Charities Regulatory Authority (CRA) for the registration of an Irish charity under S39 (3) of the act together with its regulation throughout its lifecycle under S14 of the act, the statute is silent on the legislative requirements or even guidance for charities at the end of its life. Under the provisions of this new act, the directors or trustees of such insolvent or bankrupt charities will be judged in accordance with the directors of their corporate counterparts and perhaps rightly so.
Under S28 of the new act, the Charities Regulatory Authority can provide such information as is required to An Garda Siochana, the Revenue Commissioners, the Director of Corporate Enforcement or such other person, in order to ensure that a charity can be investigated and monitored under the act where such evidence of alleged wrongdoing has come to light. It will be an offence under S10 of the act for an officer of the charity i.e. a director, trustee or such other person as holds themselves out as an officer of the organisation to breach their new statutory duties. Annual auditing and compliance with accounting standards will be mandatory under S49 of the act and proper books of account must be kept for up to six years following the dissolution of a charity in the event that an order is made for their production by the CRA under an investigation pursuant to S47 of the act.
Remarkably though, without the enactment into law of this new statute to date and for the foreseeable future, a lacuna now exists between the statutory requirements of the directors of an incorporated charity and the trustees of an unincorporated charity. Are the directors of incorporated charities presently to be judged by default under the rigours of the Companies Acts 1963 as amended while their unincorporated trustee counterparts today face no such scrutiny unless a case can be made against them under the common law? The statutory duties of a charitys directors were further constrained by the Companies Acts for breach of these duties, under S150 and S160 of the Companies Act 1990, where mechanisms were brought forward to disqualify and restrict directors for breaching their duties.
So what now of the statutory duties for the trustees of a charity trust and in particular during the termination of its trust deed? Without the enactment of the Charities Act, 2009 how are the trustees of a charity trust to be measured and sanctioned for breaches of their duties? The Law Society of Ireland in its comprehensive report, Charity Law, the case for reform in July 2002 stated that, The duty of care owed by trustees or directors of a charity should be a standard one, and should be adhered to whether the charity is an unincorporated association, a trust or a company limited by guarantee. We recommend that this duty of care should be statutory. Without the enactment into law of the new Charities Act 2009, are the statutory duties and accounting requirements of the trustees of unincorporated charities to be defined under the archaic Trustees Act of 1893? If thats the case then it would follow that a trustee of an unincorporated charity may not have to answer to any authority other than the Revenue Commissioners for perhaps overstepping its charitable purpose in the course of its activities. Such a trustee can effectively operate without the statutory threat of restriction, disqualification, summary or indictable penalty for breaching their duties. The enactment into law of the Charities Act 2009 has been fraught with political and financial obstacles which have resulted in a quintessentially Irish solution to same, that of burying ones head in the sand, while every other country in the common law world moves on with their reforms of charity law and governance.
Whatever the chances for directors of an incorporated charity efficiently and properly winding up its organisation, this is hardly a satisfactory position for the trustees of the unincorporated charities, which according to the Irish Nonprofits Knowledge Exchange report of January 2012 make up 32% of the approximately 12,000 charities registered with Revenue Commissioners for tax exemptions in Ireland. In the instance where a culpable trustee of a charity presents himself to his insurer having engaged in fraudulent or incompetent practises, will his insurance company be entitled to void the extension of their professional indemnity insurance cover to him on the basis that he has breached some ambiguous common law duty? Such an existence is a precarious one for a trustee where without the governance of legislation to monitor and restrict ill informed actions on their part or without a statutory defence to rely on for such actions, a trustee could effectively be left with just enough rope to hang himself, and in such circumstances may not be entitled to rely on the legal maxim of ignorantia juris non excusat.