Below are details of a consortium that wants to clarify its liabilities.

Background

*It was formed 5 years ago and has just over 10 member organisations. It has a name, logo, branding and website.

* The members meet monthly. They have developed protocols, membership, procedures for electing officers, running sub-groups which in one case has its own funding streams.

* The consortium bids for work and then delivers work, sometimes branded with the consortium's brand, sometimes with the individual member's own brand, sometimes with a mixture of both. They have protocols for bidding, planning and delivering and reporting on work.

* The consortium uses funding (as specified in the bid) to pay for staff to service the consortium but who are employed through one of the members.

* Bids are submitted in the consortium's name. There is a lead organisation and a statement to sub-contract to other members. Each member who delivers work is issued a commissioning letter and a sub-contract to deliver. The member is responsible for insurance and managing the liability of the services it delivers. Work sub-contracted to members can include events open to the VCS and public sector and branded with the consortium's logo, name.

* Members understand that if they do not deliver the work they are sub-contracted to deliver they will not receive payment.

* Members accept that they are wholly liable for work they are sub-contracted to deliver.

Questions

* What is the legal identity of the consortium? Is it a network, an informal partnership, an unincorporated organisation or something else?

*To what extent are members liable for other members actions, as opposed to the lead body being liable for its sub-contractor's actions? This subdivides into:

**When the member is sub-contracted to deliver work but does not deliver at all/to schedule/to specification/to an agree standard

**When a member delivers work they have been sub-contracted to carry out on behalf of the consortium and to which a third party takes offence and wants to complain - do members have control over whether the third party should be directed to complain to the sub-contractor or the consortium?

**How liable are other members when one member speaks on behalf of the consortium ?

**Can protocols/agreements be put in place to cover the liability of the 2 previous questions?

*Bearing in mind the various agreements and contracts used to cover liabilities when sub-contracting work and cover of financial liabilities, what are the other possible liabilities consortium members might incur and how likely is it that they will occur? (I think this is an enquiry along the lines of a nature, level and likelihood of risk analysis). Sub questions to this are:

**What are the implications of liabilities regarding its current legal structure?

**Can these liabilities be covered effectively through protocols/insurances?

Hello Charlie

I have a question concerning a small charitable pre-school (unincorporated) who have run into difficulties. They have a new board of trustees replacing the last one which was found to be involved in a series of 'incidents' of mismanagement of funds e.g. the current board have to pay out £300 per quarter for a photocopier that they do not have (and cannot find) and are liable to the lease company for the whole cost of the machine - £3000. The manager of the setting left because had been taking money from the group and HMRC are demanding payment for unpaid tax of £8000. This is just a sample of their current difficulties. Their current level of debt is around £20k.

Their local CVS has come in to bail them out and they have come to an agreement to pay back £10 per month which is all they can afford at the moment.

They would like to know about becoming an incorporated charity . The new board are keen to turn this group around and put in place all the necessary processes to ensure that the above doesn’t happen again. In view of their current liabilities would they be able to incorporate as a CLG - they understand that they may have to take on the liabilities of the previous board but am not sure how this would be viewed by either Charity Commission or Companies House?

I am setting up a theatre company and want to register it with companies house. I am using the Arts council's model memoranda and articles of association as a basis for this private company limited by guarantee. The point of doing this is that it will make it easier to apply for funding in conjuction with charitable status later on. I have a question about one of the clauses which has caused some confusion amongst my directors.

I have pasted the entire section containing 4.2.2 (the clause at issue) as it refers to other clauses which in turn refer to others in the section.

4 The Company’s Powers

4.1 In addition to any other powers it may have, the Company has the following powers in order to further the Objects (but not for any other purpose):

<SNIP>

[I have edited out a long list of powers not relevant to this question - CC]

4.1.11 to provide indemnity insurance for the Directors or any other officer of the Company in relation to any such liability as is mentioned in subclause 4.2, but subject to the restrictions specified in subclauses 4.3 and 4.4;

<SNIP>

4.2 The liabilities referred to in sub-clause 4.1.11 are:

4.2.1 any liability that by virtue of any rule of law would otherwise attach to a director of a company in respect of any negligence, default breach of duty or breach of trust of which he or she may be guilty in relation to the Company;

4.2.2 the liability to make a contribution to the Company's assets as specified in section 214 of the Insolvency Act 1986 (wrongful trading).

4.3 The following liabilities are excluded from sub-clause 4.1.1:

4.3.1 fines;

4.3.2 costs of unsuccessfully defending criminal prosecutions for offences arising out of the fraud, dishonesty or wilful or reckless misconduct of the Director or other officer;

4.3.3 liabilities to the Company that result from conduct that the Director or other officer knew or must be assumed to have known was not in the best interests of the Company or about which the person concerned did not care whether it was in the best interests of the Company or not.

4.4 There is excluded from sub-clause 4.2.2 any liability to make such a contribution where the basis of the Director's liability is his or her knowledge prior to the insolvent liquidation of the Company (or reckless failure to acquire that knowledge) that there was no reasonable prospect that the Company would avoid going into insolvent liquidation.

Am I right in thinking that this clause basically makes it clear that a director would be liable to make a contribution if they had prior knowledge that there was no reasonable prospect of avoiding liquidation and yet they endorsed a decision to borrow money, hire or purchase goods, services or capital assets? I assume that this clause is there because it is a legal requirement, but wouldn't this requirement be covered by the 1986 Insolvency act (as mentioned in clause 4.2.2) any way? So perhaps the clause just isn't necessary?

We now have a further problem, as it may be difficult to get all the directors together now before Xmas. Are we allowed to have a separate witness to acknowledge individual signatures or does the one witness have to witness all the signatures?

I apologise for the complexity of the question! I look forward to hearing from you.