Charitable companies update
Usually members of charitable companies are able to exercise their powers in their own interests without being subject to a fiduciary duty to the company. However, in the recent case of Children’s Investment Fund Foundation (UK) v Attorney General and others, the High Court for the first time established that members are not free to act in their own interests.
In 2002 Sir Christopher Hohn and Ms Jamie Cooper founded a charitable company named The Children’s Investment Fund Foundation with the aim of transforming the lives of poor and vulnerable children in developing countries. After the couple’s divorce in 2013 it was agreed that Ms Jamie Cooper would set up another charitable company which was named Big Win Philanthropy. The case raised a number of queries as to whether the payment to Big Win Philanthropy would amount to a payment for loss of office by Ms Jamie Cooper.
In this instance, the court considered whether a substantial grant by one charitable company to another, in order to finalise divorce financial arrangements, was a payment for loss of office that required approval from both the company members and the Charity Commission, in accordance with sections 215 and 217 of the Companies Act 2006 and section 201 of the Charities Act 2011.
As standard, Section 217 of the Companies Act 2006 provides that a resolution by the members of a company is required to approve payments to directors for loss of office and, in addition to this, Section 201 of the Charities Act 2011 provides that in the case of charitable companies, the members’ resolution would be ineffective without prior written consent from the Charity Commission also approving the payment.
It was decided that a member should vote in favour of the resolution to approve the substantial grant, as to do so would be in the best interests of the charitable company and therefore if the member voted against it, they would be doing so contrary to their fiduciary duties. Therefore, members of a charitable company which is limited by guarantee owe a fiduciary duty to act in the best interests of the charitable company and to ensure they do not act under a conflict of interest when considering whether to approve a payment to a director for loss of office.
There has long been a debate as to whether members of charitable companies are free to act in theirs or a third parties interest and this case seems to settle the debate for now. However, in this instance the members were in agreement that it was assumed that as members they owed a fiduciary duty to the company of some form. It will be interesting to see how this will work when members are in disagreement on this subject matter.