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Don’t get caught out by Bad Governance – make sure you always act within your rules…
A Charitable Trust, which owned a property which was used for community groups decided to put the property on the market. The Trust had always kept its meetings fairly informal, and when they made a decision to put the property on the market for sale, three out of five trustees voted in favour of this by a show of hands.
Shortly afterwards, once the property had been advertised for sale, the chairperson of the Trust was contacted by a disgruntled fellow trustee of the Trust, who argued that the decision to put the property on the market was not validly made as it was not made unanimously and the quorum (required number of trustees to be present at a meeting) requirements were also not met, both of which breached the Trust’s governing document.
When the chairperson asked his lawyer to check whether this claim was correct, he discovered that this claim was in fact correct, and that the decision to put the property on the market could not be enforced as it had not been made in accordance with the Trust’s governing document. The Trust therefore had to cancel the advertising of the property, which created much embarrassment and stress for the Trust.
Key things to look out for in relation to governance
Regardless of the type of entity you have as your governing entity for your organisation, you need to abide by its rules to make sure you don’t get caught out like the above chairperson did. Below are key things you need to be aware of:
- Make sure you know who has voting rights in relation to your entity (eg shareholders, members) and what decisions they have to be party to (eg major transactions).
- Make sure you are aware of whether resolutions have to be passed as ordinary or special resolutions and obtain the requisite majority/percentage required by your governing document.
- Make sure you have a quorum for your meetings.
- Keep written records of your meetings and resolutions.
- If your organisation is charitable, make sure you:
- Always consider whether the action you propose furthers the charitable purpose of the entity.
- If the entity is wound up, that the assets are only transferred to another charitable entity.
- Make sure you sign documents in accordance with your governing document (eg: with a common seal, by one officer in the presence of a witness).
- Ensure all decision making follows the process in your governing document (eg: moved, seconded etc).
- Make sure trustees/officers are replaced when their tenure has expired and that the process for replacing officers/trustees is followed.
It is easy to get caught up in the day-to-day running of organisations like this, however it is important to frequently refer back to your governing legal documents, as otherwise it can create serious issues for the organisation, as above.