What are failures in charity governance?
I am going to talk about failures in governance. But I can talk a bit about common features we’ve seen, and will distinguish between well managed closure and poorly managed collapse. I will highlight the legal duties of trustees and our expectations. And the financial updates we’ve recently issued including the 15 questions to ask (née Big Board Talk). And I can do a quick “what to do if you think this might be you” from the regulator’s perspective.
What should you do if you think your charity governance has failed?
Close a charity – the law
Charities can close for a number of reasons, such as:
- a merger with another charity
- the original purpose has been met or is no longer relevant, for example treating a disease that has since been eradicated in the area the charity serves
- losing funds or funding
- a lack of members
- becoming a company or charitable incorporated organisation (CIO), which means creating a separate charity
Legal requirement: you must tell the Charity Commission if your registered charity ceases to exist, and the commission must remove it from the register of charities.
Before your charity can close
Consider if you can make effective use of the charity’s remaining funds by transferring them to another charity with compatible purposes. Alternatively, you might find a community foundation or some other charity may offer to continue to run your trust in line with its objects.
Check if your charity has any restricted funds or ‘linked charities’ and what will happen to them if you close your charity.
If you do decide to close your charity, you’ll need to clear all its debts and liabilities before you spend its remaining assets on your charity’s purposes. This will include checking if you have any:
- unspent grant money - if so, check if there is any specific agreement with the grantmaker about what to do with it where you are closing the charity
- money from fundraising appeals that haven’t reached their target - if so, check the commission’s guidance on failed appeals to see if you need to return any donations to donors
You will then need to follow the right closure procedure for your charity; this depends on its structure.
Close an unincorporated association or trust
First, check if your charity’s governing document contains a ‘dissolution’ or ‘winding up’ section. This tells you how to close your charity. Most governing documents allow you to wind up your charity.
If your charity has members other than the trustees, your governing document may say that you have to call a meeting of the members to agree to wind the charity up.
You can use the commission’s online charity closure form unless your charity:
- had an income of more than £5 million in its last accounting year
- has assets worth more than £100 million
- is a charitable incorporated organisation (CIO) or NHS charity
If you can’t use the online form or your governing document says you need the commission’s permission to wind up, contact the commission.
If your charity has permanent endowment, you have to spend or transfer it before you can close your charity.
If your governing document doesn’t say how to wind up, as long as your charity doesn’t have permanent endowment, you can either:
- use all its remaining assets on your purposes
- give its remaining assets to another charity with similar purposes
Land and property
If your charity owns property you may need to sell it before you close. You should follow any rules in your governing document and read the commission’s guidance on selling or leasing charity property.
Alternatively, your non-company charity may be able to transfer land or property it owns to another charity.
Once you have spent the permanent endowment and disposed of any property, you can complete the closure form.
Close your charity if you are converting to a company or CIO
If you want an unincorporated association or trust to become a company or CIO, you have to form a new charity. Usually, you wind up the original charity and transfer its assets to the new charity.
If you have registered as a charity with HM Revenue and Customs, you need to tell HMRC if your charity structure changes from a trust to a CIO.
Close a charitable company
A charitable company has an automatic right to expend all of its assets on its purposes. You can tell the commission that you have wound it up by completing the closure form.
You must also make sure your charity is removed from the Companies House register.
Close a CIO
You and the trustees must arrange for the CIO members to make a dissolution resolution. This can either be:
- by a 75% majority of those voting at a general meeting
- without a vote if there are no objections to the question put to the meeting
- by unanimous agreement of the members (if no meeting is held)
The trustees must make a declaration that:
- any debts and other liabilities of the CIO have been settled or otherwise provided for in full
- says how any property has been or is to be applied on dissolution
Within seven days of making the application, the trustees must give a copy of the resolution to every person who on that day is:
- a member of the CIO
- an employee of the CIO
- a trustee of the CIO (unless they were involved in making the application)
The commission will publish a notice on your register entry stating that it has received your application. Subject to any representations, it will remove the CIO from the register after three months. The commission must then publish a notice stating the day of removal. Unlike other forms of charity, a CIO automatically ceases to exist when it’s removed from the register.
You can’t use the online closure form to tell the commission about the dissolution of your CIO. Instead, use the commission’s contact form. You need to put ‘CIO dissolution’ in the subject and confirm:
- that no liquidator is acting for the CIO
- that you are acting on behalf of the trustees or the majority of them
- that you have followed the exact procedure as set out in your constitution
- the exact wording (not a summary) of the resolution passed to close the CIO
- that any debts or liabilities have been settled or otherwise provided in full
You also need to give details of how any property vested in, or held in trust for, the CIO has been or is to be applied in accordance with the directions in its constitution.
Your responsibilities after your charity has closed
After your charity is wound up, the trustees must arrange for its accounting books and records (including cash books, invoices and receipts) to be kept for either:
- at least three years after the year they were made (for a charitable company or CIO)
- at least six years after the year they were made (for unincorporated associations and trusts)
The former charity trustees remain responsible for the decisions they made while they were in office.
Olive Cooke/PACAC report/CC subsequent fundraising guidance and trustee expectations
It follows a series of damning allegations levelled at some of the best known charities in the UK including Oxfam, the NSPCC, Save the Children and the RSPCA - last year.
They included claims that charities had bought and sold personal data, often through sub-contractors, and that they had ignored the Telephone Preference Service (TPS) and put pressure on vulnerable people to donate.
Specific cases that were widely reported on included that of 92-year-old Olive Cooke who received thousands of calls and letters from charities asking for money before she killed herself.
The Commons Public Administration and Constitutional Affairs Committee (PACAC) has today released a report which concluded that last summer’s scandals were caused by the failure of trustees to fulfil their responsibilities.
Charity Commission’s most recent annual compliance report ‘shortcomings in governance’ cause many of the problems.