Could You Be Personally Liable If Something Goes Wrong at Your Charity?

First, understand your charity’s legal structure

A trustee of a charitable incorporated organisation or charitable company is generally in a different position from a trustee of an unincorporated association or charitable trust. Incorporated charities have their own legal identity, which ordinarily helps separate the charity’s liabilities from the individuals governing it. An unincorporated charity may leave trustees personally responsible for contracts or debts they enter into on its behalf, although indemnities and insurance may offer protection. None of these structures gives permission to ignore trustee duties.

A charity debt is not automatically your personal debt

If an incorporated charity cannot pay a supplier, trustees do not ordinarily become personally liable simply because they sat on the board. The position can change where someone gives a personal guarantee, acts outside their authority or is responsible for wrongdoing. There can also be serious consequences where trustees continue taking on commitments when there is no reasonable prospect of meeting them. That is why financial trouble needs prompt attention rather than hopeful silence until the next quarterly meeting.

What happens when decisions go wrong?

Trustees are expected to act with reasonable care and skill, manage conflicts and use charitable funds properly. An honest decision that later proves unsuccessful is not the same as misconduct. The board should be able to show what information it considered, what alternatives it discussed and why its decision was reasonable at the time. Ignoring obvious warnings, misusing restricted funds or allowing an unmanaged conflict to shape a contract creates a very different picture.

Insurance helps, but read the policy

Trustee indemnity insurance may cover certain legal defence costs or liabilities, subject to its terms and exclusions. It is not a substitute for governance and it will not cover every circumstance. Check who is insured, what activities are covered, the excess, reporting conditions and any exclusions for deliberate wrongdoing. Also check whether the charity has appropriate employer, public liability, professional indemnity or cyber cover where relevant. A board that assumes it is fully protected without seeing the policy is taking an unnecessary gamble.

If the charity is running out of money

Do not wait for the annual accounts to confirm a problem everyone can already see. Ask for a realistic short-term cash-flow forecast, identify restricted funds, review creditor and payroll commitments and minute the board’s response. Take specialist charity and insolvency advice promptly if the charity may be unable to pay debts as they fall due. Trustees should not favour friends, connected organisations or their own reimbursement claims when the charity is in difficulty.

The habits that reduce risk

Keep clear minutes, maintain financial oversight, review safeguarding and key operational risks, declare conflicts, and challenge reports you do not understand. Make sure major decisions are properly authorised under the governing document. When the board lacks expertise, get advice before committing the charity. The purpose of these precautions is not to frighten people away from trusteeship. It is to protect the people the charity exists to serve, as well as the trustees who have agreed to serve them.

If this raises questions for your board, share it ahead of your next meeting and agree what needs checking. MH360 can help charities find practical professional support.