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CHARITY TRUSTEES – UNLIMITED LIABILITY!

Many sports clubs, musical societies, community groups, churches, student associations, heritage bodies and support groups are established as charitable unincorporated associations. An unincorporated association is formed through the agreement of a group of people who come together for non-commercial purposes and if you are a trustee of this type of organisation then you may have signed up to a lot more than you might have expected.

A relatively recent case involving this type of organisation and the implications for charity trustees is Davies v. Barnes Webster & Sons Ltd.  Mr Davies was a committee member of a rugby club which was an unincorporated association. The members agreed to have builders undertake redevelopment of the clubhouse for an agreed price but the contract also allowed for builders to recover any additional costs in respect of variations. These additional costs ended up being £147,000 and the builders issued a demand to Mr Davies to pay these.  Mr Davies argued that he could not be liable for the debt as he had not signed the contract and had not read the terms. However, the court held he was personally liable (along with the other committee members) for the debt.

According to OSCR’s records there are over 12,000 charitable unincorporated associations in Scotland so there are many individuals who are potentially at risk of unexpected claims and putting their personal assets in danger.

So now that I’ve got the bad news out of the way, here’s the good news! The good news is that charitable unincorporated associations can convert to a Scottish Charitable Incorporated Organisation (SCIO). The SCIO was introduced in 2011 and is a legal form which is designed specifically for the charity sector in Scotland. Its principal advantage over an unincorporated association is that it can hold property, enter into contracts, incur debts and sue/be sued in its own name. As such, there is no need for charity trustees to enter into transactions in their own name on behalf of the charity and therefore risk incurring personal liability for debts or claims.

If you are a charity trustee of an unincorporated association (or a trust) and would like more information on converting into a SCIO then please contact Angus McGuire on 01383 721621.

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