Joint and Several Liability is a principle that applies to the position of liability in an unincorporated charity for the organisation and individuals running the organisation.
If an individual is jointly and severally liable with an organisation for its debts then that individual is responsible for the debts. This means any creditor owed money by the organisation can choose whether to make a demand against the organisation or the individual for their debt.
In an unincorporated charity the organisation itself does not have a distinct legal identity meaning it can never be liable for a debt, it will always be the individual trustees. Despite this, for the ease of illustrating what joint and several liability means for the individual trustees we will assume the organisation itself is capable of being pursued.
We R A Charity is un unincorporated organisation. It has 4 trustees. At any point in time each single one of 4 trustees is fully liable for the debts of We R A Charity. The charity owes £1,000 to a local plumber. Because of the principle of joint and several liability the plumber is permitted to ask the organisation or trustee 1 or trustee 2 or trustee 3 or trustee 4, or any combination of the 5, for payment of his debt.
If none of the trustees asked for payment pay, the plumber can take all or any combination of those responsible to court for payment of his debt.
The individual(s) taken to court is entitled to claim a proportionate share from the other trustees so that they jointly share the liability, and indemnified (to be paid) from the funds/assets held by, or on trust for, We R A Charity.
So joint and several liability doesn’t seem to be such a big problem. Well, what if We R A Charity does not have the funds or assets to cover the indemnity? And what if the trustees do not have the funds or assets to cover their proportionate payment?
This is where the problems arise.
Joint and several liability can be reassuring for those taking a position as trustee as it means there are others to share the burden of liability if the organisation has insufficient assets or funds.
But it all falls apart when all of the parties involved are unable to cover their share of the debt. When this happens either the wealthiest parties will shoulder the burden of the debt, some or all of the parties may find their personal assets at risk, or worse. If all of the trustees are unable to cover the debts they may each find themselves forced to look at seeking insolvency advice on their own personal position and may even need to enter into an Individual Voluntary Arrangement or go bankrupt.
Retired trustees may also find themselves liable for the debts of the organisation despite their departure. Joint and several liability attaches to those individuals who are trustees at the time a debt arises and not simply those who are trustees at the time demand is made or action is taken. This is an incredibly important point for existing and previous trustees to understand.
Anyone taking on the role of Trustee in an unincorporated charity cannot be liable for debts that arose prior to their appointment, similarly any Trustee resigning cannot be liable for future debts. Debts or claims arising as a result of anything happening during their time as trustee will result in a claim being made against each and every Trustee at that time, whether that be from the creditor/claimant or fellow trustee.
It must be noted though that the concept of joint and several liability does not have to apply if (and only if) the Trustees who are liable decide amongst themselves not to equally share the liability.
The principle of joint and several liability is likely to make the vast majority of trustees nervous, but it can be comforting that there are others to share the burden. Of course, hopefully the chances of personal liability arising will be very small because good financial management will see the organisation spot problems before it is too late.
If you are affected by claims against you personally or know your organisation is an unincorporated charity and you are worried about its future, contact Kevin Lucas for more help and advice on 0330 128 9489.