Claims capable of being pursued against trustees can be summarised in this table but more information is below.
|Breach of duty/Misfeasance||Yes||Yes|
|Transactions at an Undervalue||Yes||Yes|
Claims are shown in order of most common occurrence:
If during your time as trustee you have breached any of the statutory or fiduciary duties laid down for you as a trustee then it is possible for losses to creditors occasioned by your actions to be recouped from you via a misfeasance claim.
Misfeasance claims are not capable of being brought for losses caused by decisions that were not negligent or matters that are beyond your control.
A common area where significant misunderstanding and therefore trustee risk occurs is in relation to restricted funds. Trustees may inadvertently breach trust law by using restricted funds when they shouldn’t. They may also breach insolvency law by returning such funds to the donor or grant provider when the charity is near point of insolvency. Restricted funds and their legal position is complex and specialist advice should be sought from Lucas Ross before taking any action.
Where at some point before the start of the charity going into liquidation, a trustee knew or ought to have known that there was no reasonable prospect of avoiding liquidation but failed to take every
possible step to minimise the loss to creditors, then he/she can be required to make a contribution to the assets of the charity.
From the point of insolvency (see the definition of insolvency here) every creditor of the charity must be treated equally. Where they are not and one or more of the trustees wanted to make sure that that creditor(s) was put in a better position than they would otherwise have been at the point of liquidation or administration of the charity, then a preference would have occurred. Some practical examples of how this happens is when a supplier is paid in full, employees are paid full redundancy and notice pay or a trustee is relieved of a personal guarantee obligation.
Transaction at Undervalue
A transaction at an undervalue occurs where an asset (this can be cash, property, stock or anything with value) is transferred or sold for less than it is worth (e.g. given away).
This is going to be extremely rare so it is very unlikely this will apply to you, however where a trustee(s) has chosen to carry on a charity with the intent to defraud creditors of the charity/not-for-profit organisation or the creditors of any other person or for any fraudulent purpose, then the trustee(s) may be made personally liable to contribute an unlimited amount.