Update
The Public Services Reform (Scotland) Act 2010, which received Royal Assent on 28 April 2010, addresses the difficulty around Trustee Indemnity Insurance (TII), When commenced, the Act will amend the 2005 Act to allow charities to provide their charity trustees with indemnity insurance despite the restrictions the Act places on the remuneration of charity trustees. In the meantime, OSCR will continue not to take action against charities because they already have TII in place. Nor will new applications from bodies that have such insurance in place, or have the power to put such insurance in place, be affected or refused because of it.
Updated May 2010
Trustee Indemnity Insurance
In May 2006, one month after the implementation of the Charities and Trustee Investment (Scotland) Act 2005, OSCR identified that Trustee Indemnity Insurance (TII) was a potentially difficult issue for charity trustees and for OSCR.
As a result of the new rules restricting the circumstances under which charity trustees may be remunerated, TII would in most cases fall foul of these new rules (section 67 and 68 of the CTI(S) Act 2005). (For more detail see OSCR’s original position statement on TII of May 2006 below).
OSCR recognised that this may have unfortunate consequences in discouraging or deterring some potential or existing charity trustees. We have therefore been working with the Scottish Government to find a solution to the problem. In the meantime no applicants for charitable status have been turned down because of this issue.
We now welcome the positive statement made by the Deputy Minister for Communities, with clarification that the issues arising from Section 67 AND 68 of the Act in relation to TII were “unintended”. The Minister has given a commitment to remove restrictions on its provision through amendment of the Charity and Trustee Investment (Scotland) Act 2005. We look forward to contributing to the development of revisions to the legislation in due course. (For details of the Deputy Minister’s statement see OSCR’s News item of 14 November 2006)
The statement by the Deputy Minister will help ease concerns within the sector. In the light of this statement and the commitment made by the Deputy Minister to seek an amendment to the legislation OSCR will continue to act proportionately and will not take action against charities because trustee indemnity insurance is in place. New applications of organisations that have such insurance in place or have the power to put such insurance in place will not be affected by this and will not be turned down because of it.
Published November 2006
OSCR's Position statement (May 2006)
Introduction
The subject of Trustee Indemnity Insurance is potentially difficult for charity trustees and for OSCR. The legislation is intended to improve the operating environment for charities and we have no wish to deter potential and existing charity trustees. However, Section 67 of the Charities and Trustee Investment (Scotland) Act 2005 clearly sets out the
circumstances under which trustees may be remunerated.
Section 67
Section 67 states that unless a charity’s trustees were entitled to receive remuneration by virtue of an authorising provision in their constitution which was in force on 15 November 2004, an order of the court or an enactment, charity trustees may only receive remuneration from the charity if:
- the charity trustees are satisfied that it is in the interests of the charity for the charity trustee to provide a service to the charity for a particular amount;
- that this amount is reasonable;
- there is a written agreement between the charity trustee and the charity that sets out the maximum amount of the payment;
- the majority of charity trustees remain unpaid; and
- the constitution does not expressly forbid payments to trustees.
If charity trustees agree that the remuneration is in the interests of the charity and the amount is reasonable then, as long as the majority of trustees remain unpaid, a written agreement will need to drawn up setting out the maximum amount to be paid.
Interpreting section 67
Section 68 defines remuneration as including ‘benefit in kind’ which can include both direct and indirect benefit. Trustee indemnity insurance will fall within the definition of remuneration in section 68 of the Act and accordingly be subject to the same conditions and restrictions as any other type of remuneration. Because most policies benefit all trustees they will fall foul of the rule that only a minority of trustees can benefit
Operating under different legislation, the Charity Commission also considers trustee indemnity insurance to be a personal benefit to the charity trustees. However, unlike OSCR, the Charity Commission has the statutory power to consent to the taking out of trustee indemnity insurance.
The practical implications
We recognise the view that this may have unfortunate consequences in discouraging some trustees and present particular problems for cross-border charities which already have Charity Commission approval, but as the regulator OSCR cannot simply ignore unpopular aspects of the legislation.
From a governance perspective, we wish to ensure that all charity trustees are aware of their responsibilities, including the duty to act in the interests of the charity. We are certain that in the long term a beneficial effect of this debate will be that charity trustees take a considered but realistic view of the risks to which both the charity and they as individual trustees may be exposed, and review their governance and business practices.
What action will OSCR take at the moment
New organisations will not be turned down for charitable status because of this particular issue. Although OSCR will offer comment in relation to an application, no applications will be rejected on these grounds. This includes applications from cross-border organisations, which we expect to see in the autumn.
Meanwhile, we have raised the issue of trustee indemnity insurance with the Scottish Government as a matter of urgency and they are considering whether to introduce amending legislation. For the present, therefore, OSCR will not intervene and take enforcement action simply because a charity has trustee indemnity insurance. However, we will review the position once we have clarity from the Scottish Government as to what they propose to do.
Published May 2006
