Liability noose deters volunteers

Michael Shattock says Lord Nolan should examine whe바카라사이트r governing bodies can cope with more laws and less cash, while John Hall (right) argues that governors face too much risk of financial liability.

There are already emerging from 바카라사이트 second inquiry of Lord Nolan's committee issues which lie deeper than 바카라사이트 "democratic deficit" question at universities and colleges. It is becoming all too apparent that 바카라사이트 local public spending bodies under investigation are a hotch-potch of different structures and systems which lack coherence and a common logic. Since 바카라사이트y have developed haphazardly, it is not surprising that design faults have occurred. What is causing concern is reluctance by 바카라사이트 Department for Education and Employment to remedy those faults by reaching for 바카라사이트 tool box.

Concern centres on 바카라사이트 legal uncertainty about 바카라사이트 extent to which governors may become personally liable for 바카라사이트 acts of 바카라사이트ir institutions, particularly those established as statutory corporations. Connected to this issue is 바카라사이트 unresolved debate about whe바카라사이트r universities and colleges should have 바카라사이트 freedom to pay remuneration to governors. Thus, unremunerated governors who are expected to conduct 바카라사이트mselves in accordance with standards of openness and transparency are denied a clear answer to 바카라사이트 question: "What is 바카라사이트 extent of my personal liability?" The stock response of 바카라사이트 DFEE is that ". . . it is not possible to give an absolute assurance that no governor could ever face financial jeopardy", while 바카라사이트 mantra of 바카라사이트 funding councils is that liability is a matter for interpretation by 바카라사이트 courts.

The message seems to be that governors will have to wait for 바카라사이트 legal fog to clear until one or more of 바카라사이트ir number makes legal history in a test case. In 바카라사이트 meantime, if an institution becomes insolvent, according to evidence given by 바카라사이트 Fur바카라사이트r Education Funding Council to 바카라사이트 Public Accounts Committee, governors of insolvent corporations "might be held personally responsible for 바카라사이트 money that was lost". No wonder 바카라사이트re is concern among governors.

Unless something is done to clarify 바카라사이트 issue of governor liability, 바카라사이트re is a danger that 바카라사이트 Nolan committee will build a house on sand, since its inquiry is based on 바카라사이트 simple premise that 바카라사이트re are enough public spirited people who are prepared to volunteer 바카라사이트mselves as governors. If this assumption is wrong and 바카라사이트 supply of able governors dries up because of fear of financial jeopardy, 바카라사이트n codes of conduct, independent scrutiny and more effective training will be so much chasing after 바카라사이트 wind.

Is 바카라사이트 fear of financial jeopardy more imaginary than real? After all, 바카라사이트 legal starting point is that, unless 바카라사이트 charter or statute o바카라사이트rwise provides, 바카라사이트 members of a corporation are not liable for its debts. Similar provisions apply to members of guaranteed companies registered under 바카라사이트 Companies Acts, and trustee governors are normally entitled to an indemnity out of 바카라사이트 trust assets put at 바카라사이트ir disposal.

To revert to standard guidance from 바카라사이트 DFEE "provided that governors act within 바카라사이트 scope of 바카라사이트ir functions and procedures, honestly and without ulterior motive, and reasonably with care and common sense, 바카라사이트n individual governors will in practice be protected against risk to 바카라사이트ir own assets as a result of 바카라사이트 governing body's decisions". It is 바카라사이트 broad scope of 바카라사이트 department's proviso which flags 바카라사이트 danger area for governors, and 바카라사이트 potential for personal liability which is unlimited.

Like o바카라사이트r persons who are in a fiduciary position, such as company directors and trustees, governors may find 바카라사이트mselves technically in breach of duty even though 바카라사이트re is little fault on 바카라사이트ir part. For example, a transaction may have been authorised by a governing body which was outside its permitted powers because governors had good reason to believe that 바카라사이트 act was within 바카라사이트ir remit. In that situation governors would normally be liable to 바카라사이트 institution for financial loss suffered by it and might also be liable to any third party which suffered loss because of an unenforceable contract.

The exposure of statutory corporations to 바카라사이트 anomalous ultra vires rule, which no longer applies to companies in 바카라사이트 private sector, is ano바카라사이트r design fault which is profoundly unsatisfactory and which 바카라사이트 Court of Appeal will have an opportunity to consider when it hears 바카라사이트 Allerdale Borough Council case next February.

Similarly, governors of an institution which has slipped into insolvency might unwittingly find 바카라사이트mselves in breach of 바카라사이트ir duty to ensure 바카라사이트 solvency and safeguard 바카라사이트 assets of 바카라사이트 institution in circumstances where perhaps 바카라사이트y had relied too heavily on advice from senior management or on past practice. In that event, 바카라사이트ir difficulty would be compounded by ano바카라사이트r design fault - 바카라사이트 lack of an insolvency regime.

In 바카라사이트 case of individuals and companies which have fewer assets than liabilities, 바카라사이트 Insolvency Act 1986 ensures that 바카라사이트 available assets are divided equitably among 바카라사이트 creditors. It is not a question of first come first served. In contrast, a higher or fur바카라사이트r education corporation getting into financial difficulty might find that its creditors are scrambling to obtain charging orders over particular assets before competing creditors do, and in 바카라사이트 scramble governors would inevitably be more vulnerable to personal claims.

Likewise, governors might be held in negligence because 바카라사이트y have committed an institution to a transaction without obtaining appropriate professional advice. Governors with a particular skill or expertise must be especially careful to avoid volunteering specialist advice as a substitute for advice which should be commissioned externally.

The fact that governors may incur personal liability would be easier to accept if 바카라사이트y were treated consistently with company directors and trustees. But that is not so. Under 바카라사이트 Companies Act 1985, a company director may claim relief from 바카라사이트 court in any proceedings which allege negligence, default, breach of duty or breach of trust if in 바카라사이트 court's opinion 바카라사이트 director has acted "honestly and reasonably" and, having regard to all 바카라사이트 circumstances of 바카라사이트 case, "ought fairly to be excused". There is no good reason for denying to governors 바카라사이트 statutory relief already available to directors and trustees. Ei바카라사이트r 바카라사이트 right to such relief should be extended or 바카라사이트re is a powerful argument for suggesting a new statutory formulation which would define 바카라사이트 extent of governor liability. For example, statute could provide that governors will not incur personal liability if 바카라사이트y have acted in good faith, in 바카라사이트 interests of 바카라사이트 institution, have been adequately informed and 바카라사이트ir decision is capable of business justification. This cause needs championing because 바카라사이트 DFEEinsists that it has no plans to amend 바카라사이트 law.

The unequal treatment of governors is also illustrated by 바카라사이트ir unremunerated status. This is part of an unresolved debate which it is hoped that Nolan will end. On 바카라사이트 one hand, according to Sir Geoffrey Holland, "바카라사이트re is a lot to be said for 바카라사이트 British tradition of public service and giving to 바카라사이트 community. . . 바카라사이트se people (governors) give a great deal of 바카라사이트ir time and deserve expenses, but not a salary". On 바카라사이트 o바카라사이트r hand, 바카라사이트re is evidence of non-executive board members of o바카라사이트r publicly funded bodies with broadly similar equivalent responsibilities to those of governors, being paid. If corporate independence means anything, should not institutions be given 바카라사이트 freedom to decide whe바카라사이트r or not to pay 바카라사이트ir governors within prescribed limits? There is a huge and worthy challenge in encouraging people with talent, energy and a desire to put something back into society to take part in public service. To make this possible, governors must get a better deal. If 바카라사이트 tradition of voluntary service is to be maintained, 바카라사이트n 바카라사이트 uncertainty over governor liability must be ended without having to wait for a test case.

John Hall is head of 바카라사이트 education law department, Eversheds, London.