Legal expenses

Question

My town council have made an error in starting up a business with without forming a company or cooperative.  This could mean that the town councillors are liable for the debts the business has made(approaching 40k). The council have now set a side £10k for Legal costs from the town council reserves.

 My question is, should the councillors have to pay the legal costs themselves rather than the community/reserves
Thank you

Answer 1

I'm not sure this clear enough to make any helpful comment.

The first question that occurs to me is who advised on setting up the business in the first place and did the council accept the advice.

Comments

The councillors and clerk went against seeking professional advice when deciding  whether  to take on the running of a new business.  The town clerk has now left

Answer 2

It really depends how the decision was made to carry out such an action. Councillors carry a jointly and severally liability( meaning any one or more can be sued) which should be covered by the council's liability insurance policy. Unless of course there is a question of legal negligence which takes you into deeper water and arguments for insurers. So nothing should come from council coffers and be a burden to the tax payer

Comments

As the decision makers they are responsible for making those decisions either individually or as a group. Councillors do not have protection under the law( civil or legislative) for their actions and a council should have indemnity insurance to cover any such actions against them. It is the same for people who volunteer as trustees in a charity. The charity should carry indemnity insurance to protect them being sued for their work.( and mistakes) which is why I say that no costs for mistakes by councillors should be borne by the tax payer via PC funds. PC should have insurance to cover.

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Forgive me, but I wonder how that squares with Section 265 of the Public Health Act 1875 which, to the best of knowledge, is still in force.

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You are forgiven(smile).Section 265 is a statement of requirement of the authority not a statement of non-liability. Forgive me but I don't have the time to check through all of the legislation to see if it still applies. indeed a NALC briefing states" What does “jointly and severally" legally responsible mean?
 Well the councillors are responsible both as individuals and collectively for the decisions and
the actions of their council
 This means that in some circumstances that all the councillors and individual councillors can
be pursued in the courts for recompense "

So the council must protect its councillors from action via insurance against being sued over decisions made in council. ( liability insurance as mentioned). Of course an insurance company might be very reluctant to fulfil their obligations if the question of illegal or fraudulent actions were involved.

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PHA 265 covers contracts "entered into bona fide for the purpose of executing this Act." It may not apply in this case.

I hope that you have brought this matter to the attention of your insurers, as they must be involved.

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S265 does still apply, although it's worth noting that it predates the formation of local councils some twenty years later.