Statutory inquiries and interim managers – an overview

Four senior lawyers from Foot Anstey's Charities Sector team have recently been added to the list of approved practitioners from which the Charity Commission appoints interim managers.  This means that the Commission is now in a position to seek our considerable sector expertise when it is investigating charities in difficulty.

In this article, we explore the circumstances that surround the appointment of interim managers, what they do and how best to avoid them becoming involved in your charity.

What is an interim manager?

An interim manager is, in effect, a receiver who is appointed to manage the property and affairs of a charity alongside (or sometimes in place of) its trustees.  Interim managers are normally appointed when the Commission believes that a charity's affairs are not being properly managed for some reason.

The power to appoint interim managers is contained in section 76 of the Charities Act 2011 and can be used when the Commission is satisfied:

• that there has been misconduct and/or mismanagement in the charity's administration; or
• that appointment of an interim manager is necessary or desirable to the protect the charity's property.

Interim managers can also be appointed where a charity or its trustees have failed to comply with an order or direction from the Commission, or where there has been a failure to remedy a breach identified by means of an official warning.

Before it can appoint an interim manager, however, the Commission must first have opened a statutory inquiry into the charity.  It has power to do this under section 46 of the Charities Act 2011.

What is a statutory inquiry?

The Commission's statutory objectives include increasing public trust and confidence in charities and promoting compliance by trustees with their legal obligations.  It has therefore been given various general powers, by means of which it can identify apparent misconduct or mismanagement and take steps to resolve issues of concern by working closely with trustees.

In more serious cases, however, the Commission may need to investigate in more detail so that it can establish the facts, determine the extent of any misconduct or mismanagement; the level of risk to the charity and its work, and decide what action is needed to resolve the concerns.

The Charities Act gives the Commission certain "temporary protective powers" that enable it to conduct full investigations into charities – and, where necessary, put things right – but they are only available once a statutory inquiry has been opened.  A statutory inquiry is therefore the Commission's gateway to a more comprehensive set of powers than would otherwise be available to it.  As well as the power to appoint interim managers, these include powers to:

• suspend trustees, officers, agents or employees of a charity;
• vest charity property in the Official Custodian;
• prevent disposals of charity property without the Commission's consent;
• restrict the transactions that a charity can enter into; and
• limit the nature and/or amount of payments that can be made without consent.

These powers can only be exercised in the most serious of cases, where an inquiry has identified misconduct or mismanagement in the administration of the charity and the Commission considers it necessary or desirable to act to protect the charity's property.

When might the Commission open a statutory inquiry?

When a concern comes to the Commission’s attention, it considers the seriousness and extent of the risk involved and how the charity is dealing with it.  Before an inquiry is opened, the Commission may carry out a less formal investigation, which will include looking at the concern raised, its source, the evidence to support or discredit any allegations made, and the potential impact involved.

An inquiry will usually be opened if there are indications of, or the potential for, misconduct and/or mismanagement within the charity, or there is:

• a significant breach of trust or non-compliance with charity law;
• significant risk to charity property, beneficiaries, employees, volunteers or the charity’s work;
• a need to establish additional facts or to collect further evidence; or
• a risk to public trust and confidence in a specific charity or the sector as a whole.

If there has been a non-compliance of some kind, but the Commission decides that the criteria for opening an inquiry have not been met, it may give regulatory advice and guidance to the trustees to rectify the situation and prevent it from happening again.

What happens when a statutory inquiry is opened?

The Commission is not obliged to let trustees know before opening an inquiry, although in many cases the trustees will know what the regulatory concerns are from their previous dealings with the Commission.  Once an inquiry has been opened, the Commission will contact the trustees to inform them and to give them an opportunity to respond.  It will normally also issue a public statement confirming that an inquiry has been opened.

The Commission is likely to ask for information and documents, and access to charity records will normally be required.  It expects to deal directly with the trustees, as they are the people who have general control and management of the charity's administration and are legally responsible for what happens within it.  Depending on the circumstances, an inquiry can last for many months and can therefore be a considerable drain on the trustees' time and the charity's resources – even where matters are resolved satisfactorily.

Once an inquiry is complete, unless exceptional circumstances apply, the Commission will report publicly on its findings by issuing a statement, which will be published on its website.

The Commission's guidance points out that the opening of a statutory inquiry should not, in itself, be seen as a finding of wrongdoing in a charity.  The Commission's aim in opening inquiries is to prevent abuse, ensure compliance and, where necessary, put a charity back on a secure footing.  If the causes for concern that gave rise to an inquiry are not substantiated, the Commission's report will say so. 

How can a statutory inquiry be avoided?

The Commission opened 89 new statutory enquiries during the year to 31 March 2024, compared to 72 the previous year, which reflects its growing focus on tackling wrongdoing and harm in the sector, as well as its desire to be seen as an effective regulator.

A review of recent inquiry reports indicates that there are several recurring themes that give rise investigations by the Commission.  These include:

• failure by trustees to properly manage conflicts of interest within their charity;
• poor financial controls by trustees, including successive failures to file accounts on time;
• the receipt by trustees of unauthorised benefits;
• governance failures, such as improperly constituted boards; and
• over-reliance on dominant trustees or members of the senior executive team.

The overarching picture is one of charity trustees not understanding – or at least failing to follow – the rules that apply to them.  In many cases, the inquires could have been avoided had the trustees simply ensured they were following appropriate procedures and taken legal advice where necessary.

By familiarising themselves with their legal duties, conducting regular governance and policy reviews and undergoing training, trustees can help to ensure that they and their charities comply with the law and avoid regulatory concerns arising in the first place.

How can Foot Anstey help the Commission – and your charity?

As approved practitioners, Foot Anstey can expect to be invited to tender whenever, having opened a statutory inquiry into a charity, the Commission believes it would benefit from the assistance of specialists at the firm. This might involve us:

• bringing our independent and expert skills to a charity in testing circumstances;
• helping to protect a charity’s property, including its funds and income;
• identifying irregularities and inefficiencies, and putting them right wherever possible;
• ensuring that a charity’s beneficiaries, or others who come into contact with a charity through its work, are protected from harm;
• introducing significant improvements in a charity’s governance;
• strengthening a charity’s financial management and controls; and
• protecting a charity’s reputation and/or the reputation of the wider sector.

But a charity does not need to be in difficulty to benefit from services such as these.  We help charities of all shapes and sizes to ensure that they are working efficiently, having the greatest possible impact on their beneficiaries, and staying within the requirements of charity law and governance best practice.  If you would like our support in any of these areas – whether or not your charity is already the subject of regulatory concerns – please contact a member of the team.