OPERATIONAL GUIDANCE

LOCAL AUTHORITIES AND TRUSTEES

POTENTIAL CONFLICTS OF INTEREST WHICH TRUSTEES NOMINATED BY THE LOCAL AUTHORITY MAY FACE

OG 56 C2-26 July 2000

Purpose: This guidance is not directly concerned with the local authority acting as trustees. It provides guidance on the issue of trustees who are nominated by the local authority. Caseworkers should use the guidance only in appropriate circumstances.

Divisional responsibility

For action:

Charity Support Division

For information:

Investigation Division
Registration Division

Contents

1. What constitutes personal interest in this context
2. When a trustee should consider withdrawing from a trustees' meeting
3. When would-be trustees face a continual conflict of interest

Meaning of expressions - list of Glossary terms used in this Guidance
Index to further related information

1. What constitutes personal interest in this context

Personal interests in this context extend beyond purely financial interests and can include interests arising from employment by or membership of a local authority. Where there is a contractual relationship between a charity and a local authority for example an obvious conflict of interest arises for any trustee who is also a member or officer of the local authority whenever the trustees discuss questions relating to that contractual relationship.

That would include:

• questions of negotiating and agreeing the terms of the contract;

• compliance with the terms of the contract;

• enforcement of the contract against the local authority;

• disputes arising under the contract;

• renegotiation or renewal of the contract;

any question in fact in which the local authority has an interest that is potentially adverse to that of the charity.

2. When a trustee should consider withdrawing from a trustees' meeting

Where a trustee has a conflict of interest and duty in relation to a particular matter for example where the matter concerns a contract or proposed contract between the charity and a local authority of which he or she is a member or officer he or she should consider withdrawing from any meeting at which the matter is discussed.

This will be sufficient to resolve the conflict of interest where the governing document specifically permits trustees facing a conflict of interest to withdraw from appropriate meetings.

The governing document may either permit or require the trustee with the conflict of interest to withdraw from the meeting. However the transaction in question will of course only be secured if the trustee with the conflict does withdraw.

Where the governing document is silent on this matter the general law will apply. A strict application of the principles would mean that the mere existence of a conflict of interest might provide grounds for the transaction concerned to be set aside if it is not in the interests of the charity. This would be so even if the trustee(s) concerned withdraw from relevant meetings. In practice however the risk of a transaction being set aside is likely to be reduced if the trustee(s) concerned play no part in the discussions over the issues over which they face a potential conflict. Where individuals find it difficult to decide how to proceed they should take their own legal advice on the matter.

Obviously if a trustee regularly withdraws from decisions of the trustees on this basis there must be a question whether his or her usefulness as a trustee is being reduced to the point where it might be preferable to appoint someone else in his or her place.

3. When would-be trustees face a continual conflict of interest

Provided that they understand that in acting as trustees of a charity their sole duty is to the charity there is no objection in principle to a member or officer of a local authority becoming a trustee of a charity. That said an officer or member who would face a continuing or substantial conflict of interest if he or she became trustee of a particular charity should not offer himself or herself for appointment as a trustee of that charity. The position depends on the extent to which the charity concerned is connected with the local authority.

The following words and phrases are defined in the Glossary of Terms:

•

trustees

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