Managing liability for your community: Andrew Bibby looks at the financial responsibility involved in being a trustee

Richard Battersby is the treasurer of his local community association in Grove Hill, Hemel Hempstead, responsible for overseeing the pounds 77,000 income that its community centre generates each year. In many ways, he says, it is like running a business. 'Without good business practices we wouldn't be able to survive,' he says.

Unlike a commercial limited company, however, he and his colleagues on the management committee are liable personally for any debts the association may incur. Though they are unpaid volunteers, their potential financial liability is unlimited.

This is the position faced by the many hundreds of thousands (even, according to the National Council for Voluntary Organisations, as many as a million people) who are management committee members or directors of voluntary community groups and charities. Mr Battersby understands his legal obligations, but many do not. A recent survey by the NCVO suggested that two in three do not even realise they are trustees.

'It is very difficult to tell a person, say, who is a local Guide leader and who comes on the committee because the Guides use the hall that they're a managing trustee and are financially responsible - but they are,' Mr Battersby says.

Charles Woodd, national director of Community Matters (formerly the National Federation of Community Organisations), sympathises.

'We worked out that a local organisation managing a community building could be subject to up to 60 pieces of legislation,' he says. 'The best answer is to be clear and common- sensical about how you manage the organisation, and you will probably be all right.' As he knows, however, sometimes things go wrong: like a community group with an outstanding debt to a brewer of pounds 350,000.

'We feel very strongly that the law is quite unfair. There's absolutely no reason why trustees of a small unincorporated voluntary organisation should be any less protected than the directors of a small business,' says Mr Woodd.

Debts from leasing arrangements, redundancy payments to staff (a problem particularly if grant funding is unexpectedly cut), under-insurance or third party liability claims are among the many potential pitfalls. Some protection is possible by incorporating as a company limited by guarantee, though, as Mr Woodd points, out small organisations can find the Companies Act requirements for running a company expensive and cumbersome. 'We need to develop an alternative incorporation structure for voluntary organisations,' he says.

Trustees of organisations with charitable status (whether incorporated or not) face additional responsibilities, under the increasingly watchful eye of the Charity Commission. In theory at least, trustees run the risk of claims against them for breach of trust if, for example, they allow the charity's funds to be wrongly applied.

In practice, according to Kate Kirkland, head of the NCVO's Trustee Services Unit, this is unusual. 'There are very few occasions where trustees do suffer a financial penalty. On the whole the Charity Commission attitude, if it's an honest mistake, is to give them a ticking-off,' she says.

Nevertheless, it is not surprising if charity trustees are looking with interest at trustee liability insurance policies, a relatively new concept available now from about five specialist brokers. The policy from the London-based firm St Olaf is typical, offering cover against claims for acts such as misapplication of assets or imprudent investment decisions. Premiums begin at pounds 187, and are based on the charity's size and type of activity.

Taking out trustee liability insurance is not necessarily straightforward, however. If the charity pays the premium, it is benefiting the trustees and thereby may not be meeting its charitable objectives - ironically, in itself a potential breach of trust. For legal reasons, the Charity Commission normally has to give permission to trustees of established charities to extend their powers before insurance can be taken out, and approval is not always automatic. 'If the trustees can give us good reasons why it is in the interests of the charity that the trustees should be protected, then we are willing to make the order,' says Graham Goodchild, deputy commissioner at the Charity Commission. However, he adds that sometimes charities will be asked to consider other ways of reducing the risk to trustees - such as tightening up their administrative procedures.

The extent of the insurance cover is also attracting Charity Commission interest. 'Honest mistakes and errors of judgement are not a problem, but we are concerned that charities should not pay to protect trustees against acts which they know to be wrong or which they commit recklessly,' Mr Goodchild says.

The NCVO will shortly publish a revised edition of its briefing paper on Trustee Liability Insurance. Both the NCVO and Community Matters offer advice and training to trustees.

(Photograph omitted)