What is the status and duty of members of an academy trust?
A court case has confirmed that members of charitable companies are fiduciaries and owe duties as such. We look at what this means for academy trusts.
What is an academy trust?
An academy trust is a company limited by guarantee which means it is a company incorporated and registered at Companies House whose members undertake or guarantee, in the articles of association, to contribute up to £10 towards payment of the debts, liabilities, costs, charges and expenses of the academy trust on its winding up.
An academy trust is also an exempt charity which means it is a charity, and so must comply with charity law, but is exempt from the requirement to be registered with the Charity Commission. As an exempt charity it is regulated in large part by the Secretary of State for Education as principal regulator under a Memorandum of Understanding between the Department for Education (DfE) and the Charity Commission.
As a company limited by guarantee and exempt charity, an academy trust is therefore a charitable company.
Who are the members?
The members of an academy trust are company law members, which means they have certain rights in relation to the academy trust as a company limited by guarantee. For example, they have the power to amend the articles of association subject to the prior approval of the Charity Commission where the change relates to the objects, the application of property on a winding up and/or the payment of benefits to members or trustees/directors or persons connected with them. Under the current DfE model articles of association, the members also appoint the majority or all of the trustees.
What was the court case about?
The court case concerned the Children’s Investment Fund Foundation (CIFF), founded by Sir Christopher Hohn and Ms Jamie Cooper, which became difficult to manage when their marriage broke down. To resolve the difficulties, Sir Christopher and Ms Cooper agreed that, in return for a grant of $360m to be paid by CIFF to Big Win Philanthropy (founded by Ms Cooper), Ms Cooper would resign as a member and trustee of CIFF. CIFF’s members had to approve the grant. However, as Sir Christopher and Ms Cooper each had a conflict of interest, they had to absence themselves from the vote. It therefore fell to the one remaining member, Dr Marko Lehtimaki, to vote on the proposal. The Supreme Court ordered Dr Marko to vote for the resolution approving the grant.
Why is the court case relevant for academy trusts?
The Supreme Court concluded that members of charitable companies are fiduciaries.
What does this mean for academy trusts?
The Supreme Court referred to an earlier case which defined a fiduciary as someone who has undertaken to act for or on behalf of another and so owes a duty of single-minded loyalty to them. By agreeing to be a member of an academy trust, a member agrees to act on behalf of the academy trust in accordance with its articles of association and so owes a duty of single-minded loyalty to the academy trust.
The Supreme Court expanded on the duty of single-minded loyalty by saying a fiduciary must not put themselves in a position where there is a conflict between their interest and that of the charitable company and must act in the interests of the charitable company to the exclusion of their interests or those of a third party. Members must therefore absence themselves from and not participate in discussions and decisions of the members where their interests or those of a third party conflict with those of the academy trust. This has added resonance for members who have been nominated or appointed by or on behalf of a Church Diocese or a foundation or sponsor. They must therefore act in the interests of the academy trust and not the organisation who nominated or appointed them.
The Supreme Court further expanded on the duty of single-minded loyalty by saying a fiduciary must not profit from their position. This is regulated by the current DfE model articles of association which provide that a member may only be paid for goods and services provided to, or rent and interest received from, the academy trust where the payment is reasonable and proper, the trustees are satisfied it is in the interests of the academy trust and the decision is recorded in the minutes. The issue is also regulated by the Academies Financial Handbook where the provisions dealing with related party transactions prohibits contract payments to members above a de minimis level where the payment includes an element of profit.
In terms of the precise nature of the fiduciary duty, the Supreme Court confirmed that members of a charitable company must act in the best interests of the charitable purposes or objects of the charity. Members must therefore act in the best interests of the objects of their academy trust which, according to the current DfE model articles of association, are to advance education for public benefit in the UK including by establishing, maintaining, carrying on, managing and developing Academies. An academy trust may also have other objects depending on their circumstances and wider activities.
Finally, the Supreme Court said the duties owed by a member of a charitable company need to be considered according to the particular circumstances that apply and the governing document of the charity. Members must therefore be familiar with the articles of association of their academy trust and act in accordance with those articles, with company and charity law and with other laws that apply in the particular circumstances.
The Supreme Court has confirmed that members of charitable companies owe a fiduciary duty to act with single-minded loyalty in the best interests of the objects of the charity and in accordance with their governing document and with company, charity and other law and to avoid any conflict of interest or profit from their position. This applies to members of academy trusts as charitable companies and is particularly welcome given the uncertainty of some academy trusts regarding the role and function of their members.
The information in this article is necessarily of a general nature. Specific advice should be sought for specific situations. If you have any queries or need any legal advice please feel free to contact Wrigleys Solicitors.