04/04 2019

The legal representative of religious entities: the role of the Legal Representative

This article rounds out – for the time being – Dikaios’ series on the legal representative (LR) for Civilly Recognised Ecclesiastical Entities (“CREE”), which, in addition to dioceses, parishes, etc., also includes generalates, curias, provinces, local communities, houses and other emanations of religious congregations.

In order to accomplish his or her duties correctly, it is necessary that the Legal Representative of a CREE be aware of the series of duties and responsibilities arising from various statutory and regulatory provisions, which ever increasingly apply also to CREE’s.

For many years, the management of CREE’s has been considered a mere “local” formality, in comparison to the broader and more significant management of the Congregation, and indeed, the Legal Representative a mere figurehead while the real decisions were taken by other officials of the Congregation. This attitude still persists to this day, witness the vast majority of CREE’s that still do not have Statutes or financial statements. Times are changing, however, and, in line with a general trend towards entity transparency and responsibility, sooner or later the CREE’s will also have to adjust to these requirements, either voluntarily, for reasons of convenience, or under the constraint of the law (see the new legislation on “third sector” non-profit entities), on pain of losing important tax and other advantages, to cite just one example.

This article aims to give a broad overview of the principal duties and responsibilities incumbent upon the LR of a CREE deriving both from canon law and from civil law. These requirements need not be in conflict. For example, with respect to the alienation of real property, the 1985 modifications to the Lateran Treaties (Art. 7 of Law 121/1985) provide specifically that, in addition to the rules and controls of canon law, a CREE shall also be subject to the provisions of Italian law applicable to civil entities generally.

Specifically, with respect to persons who manage or administer the temporal goods of the Church, and this includes the Legal Representative of a CREE, Canon 1284, §1 sets the general standard to be respected in carrying out his or her duties: “diligentia boni patris familias”.

This standard of care is common in legal parlance, even if there is no specific definition of this standard. One can say, however, that it means the diligence of the “average” householder. The “prudent head of household” thus discharges duties in a wise and judicious manner, because the household is dependent on him/her. It is evident that, the exact outlines of this “judicious” conduct must be assessed on a case-by-case basis and will depend on what duties are to be performed, and which tasks carried out.

In line with the duty of care required under canon law, Art. 28 of the Code of the Non-Profit Sector (Legislative Decree no. 117, 3 July 2017) provides that “the directors, general managers, members of the governing body, and the party mandated to audit the books will be liable as against the entity, its partner-creditors, the founder, the affiliates, and any third parties, under Articles 2392, 2393, 2393-bis, 2394, 2394-bis, 2395, 2396 and 2407 of the Civil Code, and Article 15 of Legislative Decree no. 39 (27 January 2010), to the extent applicable.

Moreover, Art. 2392 of the Civil Code contemplates that “directors shall discharge the duties assigned to them by statute or by the articles of association with the standard of care required by their office and their particular expertise”.

Thus, the Civil Code likewise cites “due care” as an indispensable characteristic of a good director and the focus is on a general duty of trust with vis-à-vis the owners or the beneficiaries of the property or goods managed.

After setting the general standard of care applicable to administrators, Canon 1284 in detail the duties of the LR of administrators of religious institutes in general, including the LR of a CREE. As we shall see, these duties all have a counterpart in Italian civil law.

One caveat, however: duties arising from the office of director/LR can certainly not be limited to the list of operations of Canon 1284 as detailed below, which is not exhaustive.

But more specifically, canon law imposes the following duties on administrators:

  • “Provide proper supervision to ensure that assets entrusted to their custody for whatever reason are not destroyed or damaged, securing insurance coverage for the same if necessary”

That task, on its face, imposes an actual duty on the LR to liaise with insurance companies where necessary. This imposes on the LR the obligation to ascertain when such insurance coverage should be obtained.

In fact, for any incident, the burden will be on the LR to show he or she used the care of a “prudent head of household” and did everything possible to avoid harming or prejudicing the CREE.

Furthermore, in reading the law we note that, albeit not expressly stated, it is prudent to secure insurance coverage not only for property damage to Church or Institute assets, but liability coverage as well (think, for instance, of crumbling mortar falling from CREE buildings onto a passer-by).

It would also be prudent to look into coverage for the LR in terms of errors and omissions while in office. It is possible that the administrator’s own efforts or lack thereof cause harm to the entity. For those cases, insurance coverage should be sought that is quite similar in nature to that of a corporate director (Directors and Officers Policy).

  • “Ensure that ecclesiastical property is protected under civil statutes”

With this regulation, the CJC imposes a duty on the LR/director to secure ecclesiastical property as against the community at large.

Indeed, real property owned by the CREE may have a defect on the title. This may include a deed not properly transcribed into the real-estate registers. This implies that the LR has knowledge of the legal status of the properties and of whether these comply with the laws and regulations in force with respect to questions of zoning and cadastral compliance.

There is, therefore, a series of duties through which the assets themselves are guaranteed, providing greater legal clarity with respect to the same.

  • “Comply with provisions of canon and civil law, and those imposed by the founder or donor, or by the legitimate authority; take care, moreover, that any violation of civil law does not harm the Church”

The LR shall therefore abide not only by the provisions of canon law, but also be familiar with civil law regulations, which must be complied with.

The volume of legislation produced today could well overwhelm even the most prepared and the shrewdest of administrators. In such cases, the assistance of an expert will be helpful to allow for a more solid interpretation of the law, and clarity regarding legal compliance. The recent privacy reform under the GDPR is one example in point.

Naturally, along with the aforementioned laws and regulations, the will of the founder or donor (if any) for one or a series of transactions shall be respected as well.

It is also important to note that in addition to the administrator’s complying a particular law or regulation, the wise administrator will attempt to structure standard operating procedures for entity operations, in order to make the entity itself as “compliant” as possible.

In that respect, it would be a good idea to establish an internal organisational structure not unlike the one required for privacy or occupational-safety purposes. Such procedures are intended to ensure a legally compliant decision-making and operational infrastructure.

It is no coincidence, that Art. 2381, paragraph 5 of the Civil Code specifies that the director shall ensure “the organisational, administrative, and financial/accounting infrastructure is sufficient given the nature and size of the enterprise”.

That infrastructure would allow the LR to be able to prove he/she took proper care in administering the CREE.

  • “Timely and specifically demand any proceeds or revenue from an asset; hold such proceeds or revenue in a secure manner following redemption, and use them as the founder’s directions, or lawful regulations, require”

The mission of the Church cannot do without financial and other resources, allowing activities to continue effectively and for the benefit of the community at large. Thus, the CREE would by well-served by the LR’s monitoring its financial assets and other sources of income. Those resources can fund programming that CREE intends to carry out according to its Congregation’s mission.

  • “Pay any interest owed on a mortgage or other secured loan when due; take care to pay off the principal on the same”

If, on the one hand, financial assets must be monitored, on the other it is crucial that debts be repaid. Thus, for example, if a mortgage is taken out to purchase real estate or for a remodelling project, one must carefully bear in mind the instalment-payment deadlines on the same. The auto-pay method of payment is one way to ensure that important payments are not “forgotten”.

  • “Use, with the consent of the Ordinary, any surplus funds that might be utilised for the mission of the Church or the Institute”

Occasionally the CREE has surplus funds with respect not only to the needs of ordinary administration, but also beyond what is needed for programming (social welfare or mission work). 

In such cases, the LR may use such funds for the mission of the Church or the CREE in question.

  • “Keep the entity’s books in order with respect to income and expenses”

For such operations – even for entities that are not particularly complex, from an accounting standpoint, like the Religious Institutes – having a qualified accountant or other accountancy expert is now a practical requirement. That professional can assist the CREE with the proper bookkeeping.

Furthermore, for those entities to which non-profit (third sector) rules apply, where they carry out “their operations exclusively or predominately as a commercial entity, they shall make those accounting entries as required under Article 2214 of the Civil Code”, that is, the journal, inventory book, as well as a general ledger.

  • “Generate a year-end financial statement”

At the end of each fiscal year, the LR/director shall provide a list of all income and expenses, and any other information relating to the CREE’s balance sheet, with the funds available (including any reserves) which must be expressed in a manner that allows for immediate verification.

It is thus a good idea to maintain an accounting register and a financial summary, as well as a succinct management report, with a notation of any pending transactions or issues. Accounting entries and supporting documents shall be retained for ten years from the date of recording.

Furthermore – again with a view toward harmonising canon law and civil law regulations – we should take into consideration the fact that Art. 13 of the Non-Profit Code sets forth that “non-profit entities shall generate financial statements composed of a balance sheet, income statement, with a notation of the entity’s income and expenses, and a report on the mission illustrating the items on the balance sheet, the entity’s economic and financial performance, and how the mission is being pursued”.

Those financial statements “shall be generated in compliance with the format established by the Ministry of Labour and Social Policy, with the input of the national non-profit board”.

If the entity is predominately commercial in nature, one must generate and officially file (with the business register) financial statements for the fiscal year generated pursuant to Article 2423 et seq., Art. 2435-bis, or Art. 2435-ter of the Civil Code.

Regardless of the nature of the activity provided, the Non-Profit Code contemplates that the entities with “revenue, income, proceeds, or other intake of money however named in excess of 1 million Euro shall file, with the national centralised non-profit register, and post (to their official website) the entity’s financial statements”.

In any case, it is generally good practice, and in line with the general principles of transparency and responsibility, even if not strictly required, for all CREE’s to have yearly financial statements.

  • “Properly catalogue documents and instruments on which the rights of the Church or the Institute regarding the assets rests, keeping them on file in an accessible, suitable archive; then, where it can be done conveniently, file the originals with the Curia”.

The last duty enumerated in canon law involves the aforementioned “prudent head of household” standard. In any event, one can be a wise director by keeping the CREE’s files in an organised and systematic way.

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If you would like to explore any issue presented in this article further, we invite you to contact us at info@dikaios.international or ring us on +39 06 36712206. We are here to help.

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