Article:

Administrators of Foundations - their role, duties, and exposure to liability

03 June 2016

Foundations and their assets are managed by one or more administrators (at least three for a purpose foundation and one for a private foundation). A founder may be an administrator himself, but in cases where he is also a beneficiary of the foundation, he may not at the same time act as the sole administrator - of course, this rule is designed to cut down on the possibility of abuse arising out of the conflict of interest of the founder.

The first administrators are normally appointed in the statute of the foundation. In general there are no particular restrictions as to who can be appointed, however certain persons are deemed incapable or unworthy of occupying the role, including those who have been convicted of certain crimes within the previous ten years or those subject to a disqualification order made by the Court. Moreover, an administrator of a private foundation requires authorisation in terms of the Trusts and Trustees Act, irrespective of the extent of his activities, or whether remuneration is payable or otherwise – this entails a rigorous due diligence process undertaken by the Malta Financial Services Authority designed to ensure fitness and probity.

The duties of an administrator should not be taken lightly in view of the onerous obligations which the law imposes, and in this spirit, the law requires administrators to express their consent to act as such in writing. Administrators are duty-bound to administer the foundation in accordance with its purposes and objects, and are responsible for exercising their discretion where this is required by the statute or by law e.g. deciding on the timing and extent to which beneficiaries will benefit from the foundation, excluding or adding a person as a beneficiary etc. In this regard, administrators are bound to inform beneficiaries of their entitlement under the statute of the foundation. Administrators are also required to maintain control over the property of the foundation and safeguard it appropriately.

In conducting their activities, administrators are obliged by law to act honestly and with utmost good faith, avoiding conflicts of interest, refraining from making undisclosed or unauthorised profit, and acting impartially where their duties are owed to different persons (particularly relevant in the case of a private foundation). Administrators are held to account and for this reason they are required to keep records of all assets and liabilities, as well as the income and expenditure of the foundation for annual financial periods. In the case of additional endowments made to the foundation, administrators are bound to file with the Registrar an inventory or descriptive note of the assets added to a foundation within three months. Moreover, the founder (or any other person appointed in the statute of the foundation), has the power to supervise the administration of the foundation and obtain a copy of the accounts and inventories maintained by the administrators. Other similar extensive rights are granted to the Court, the supervisory council or protector (if any), and any other person who is vested with such right in the deed of foundation. On the termination of their office, apart from rendering an account of their administration, administrators must return all property of the foundation.

In a bid to assist administrators in their daily duties, the law allows them to ask the Court for directives concerning the manner in which they are to act in connection with any matter concerning the foundation. This power is especially useful in those cases were some doubt exists as to a particular proposed course of action. Of course the inverse scenario applies as well - interested persons can have recourse to the Court so that administrators are kept in check. In fact the Court has the power to make an order concerning the administrator of any foundation, including an order relating to the exercise of any power, discretion, duty or conduct of the administrator, as well as relating to the appointment or removal of an administrator.

If administrators default on their obligations there are consequences. In cases of misconduct, failure to declare conflicts of interest or breach of duty, an administrator may be removed, and this is such an important remedy that any provision in a statute to the effect that an administrator may not be removed is null and void. If removal cannot be achieved using the remedies indicated in the statute, any interested person may ask the Court to remove the administrator. The Court’s powers are very far-reaching and the administrator may even be subjected to a disqualification order, which essentially precludes him from acting as administrator for other foundations. Of course, removal does not absolve a defaulting administrator of his obligations to make good for the damages caused and to return any property together with all other benefits derived by him, whether directly or indirectly.

As one can appreciate, our legal system goes a long way in ensuring that administrators abide by their duties, providing effective remedies to those parties who have a legitimate interest and who are worthy of protection.