Conflicts of Interest Policy
1. Duty of Undivided Loyalty
- It is a charity Trustee’s duty not to place themselves in a position where they have, or may have, an interest that conflicts with their duty as a charity Trustee (the ‘no conflict rule’).
- A charity Trustee must not make a profit from their position as a charity Trustee (the ‘non-profit rule’).
- A charity Trustee must not place themselves in a position where a conflict of interest may arise.
- A charity Trustee must not find themselves in a position where there is a conflict of loyalty. A conflict of loyalty could occur where a charity’s Trustee’s duty to the charity conflicts with their duty of loyalty to the following people: a member of their family, a another person connected to them, an organisation that employs them, another charity to which they are a charity Trustee and a body (such as local authority) that has appointed them as a charity Trustee of the charity.
- The conflicted charity Trustee will have failed to act in accordance with their fiduciary duties and they may be personally liable to account to the charity for any loss that may have been caused to the charity as a result of that breach.
- If the conflicted charity Trustee has received an unauthorised benefit from the charity the charity Trustee will also be liable to account to the charity for that benefit.
- A transaction made in breach of the no conflict rule may be subject to challenge. Proceedings to declare a transaction void or voidable can be brought by the Attorney General or the Charity Commission.
- The no conflict rule does not apply if, and to the extent that, the conflict has been authorised by a provision in the charity’s governing document, the Commission, the Court or a statutory provision.
- In practice the no conflict rule requires all actual or potential conflicts of interest to be fully disclosed by a conflicted charity Trustee to their fellow charity Trustees and either be avoided or properly managed.
- A person who has or may have a conflict of interest from acting as a charity Trustee is not necessarily precluded from being appointed as a charity Trustee. All prospective charity Trustees should be required to declare conflicts of interest during the recruitment process. The current charity Trustees should carefully consider whether that person will be able to make a proper contribution to managing the charity if he or she is required to withdraw from a significant part of the charity Trustee’s business as a result of that conflict.
- As a matter of good practice charity Trustees should declare any interest that they may have in an item to be discussed at the start of their meetings and establish and maintain a register of these interests. Declarations of interest should be included in all agendas for charity Trustees’ meeting as a reminder of this important duty.
- When a conflict of interest has been identified and declared a conflicted charity Trustee should consider whether to resign their Trusteeship.
- There will be many occasions where a conflict of interest has to be managed and when the interests of the charity will be best served by appointing a new charity Trustee or for an existing conflicted charity Trustee will remain in post despite the conflict of interest. In these cases the non-conflicted charity Trustees must ensure that, despite the conflict, all relevant decisions are made solely in the best interests of the charity and that they are able to demonstrate this.
- The charity’s governing document or a separate conflict policy should set out procedures to be followed when a charity Trustee has a conflict of interest. These will require a conflicted charity Trustee to declare the nature and extent of their interest before discussions begin on the matter, to withdraw from the meeting for the relevant item and not be counted for part of the meeting and to be absent during the relevant vote and have no right to vote on the particular conflicted matter.
- In many cases managing the conflict should enable the charity Trustees to demonstrate that the decision has been made properly and has been unaffected by the existence of a conflict of interest.
- If the conflict is so serious that any decision will be tainted by it, even if procedures are followed, the charity Trustees must decide on the most appropriate course of action which may be to not proceed with the proposed transaction or arrangement.
- The no-conflict rule is modified in certain respects by the Companies Act 2006. This means that Directors of charitable companies are subject to a different framework to Trustees of an incorporated charity.
- A Director has a duty to declare conflicts of interest and the nature and extent of any direct or indirect interest they may have in a proposed transaction or arrangement with the company. The declaration must be made before the company enters into the transaction or arrangement and can be made either at a Directors Meeting or by sending a written notice to the Directors.
- Failure to comply with the duty to declare conflicts of interest will carry civil consequences of a breach of an equitable principle.
- A Director or a charitable company is not required to declare an interest in the following situations:- firstly if it cannot reasonably be regarded as likely to give rise to a conflict of interest and if, or to the extent, that the non-conflicted Directors are already aware of it.
- A Director or a charitable company must avoid a situation in which they have or could have a direct or indirect interest that conflicts or possibly may conflict with the interest of the company.
- A Director will not breach their duty to avoid a conflict of interest if the company’s Articles of Association allow the duty to be disapplied in relation to a specific transaction or arrangement with the company and where the company’s Articles provide a provision enabling the non-conflicted Directors to authorise a transaction to proceed despite the conflict.
