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Charities

Charity or Society Insolvency - What Should We Do?

The first task for the Trustees is you need to find out if your charity is legally insolvent.

There are two definitions of insolvency. If you fail either one or both, you are by law an insolvent charity.

  1. The balance sheet test – can all the charity assets pay off all the liabilities (including the closure costs like redundancy)?
  2. The trading test – can the charity pay its liabilities on time as they fall due?

You may also be in the position of solvent now but making losses with the knowledge that you will become insolvent. This can be common for a charity that loses a major income stream. If the answer is yes to any of these, then you should call an urgent Trustees meeting to discuss the charity’s options.

Trustees

The Trustees have a duty to comply with the charity’s objectives, but they also have a duty to the creditors of the charity.

Trustees who beleive they maybe insolvent should arrange to meet and discuss:

  1. The latest financial management information including the last year end accounts and a profit and loss account and balance sheet to date.
  2. Some realistic financial forecasts. Are the finances improving or getting worse?
  3. What are the possible outcomes? They may be to close and pay everyone off and then hand the remaining funds to another charity or it may be to stop trading and go into liquidation or administration. 

Whatever is decided the Trustees should keep a written record of the meeting and reasons why they are carrying on if that is the conclusion. Trustees can be liable for the charity debts if they have acted wrongly and allowed the financial position to get worse. You may need these records or minutes at a later date to defend yourself if you are taken to Court as a Trustee for allowing wrongful trading.

The charity is insolvent what do we do next?

You need to get some independent professional advice. We can help you and have dealt with a wide range of charities. We can give you that advice at a first meeting or by telephone or by Teams/Zoom.

The advice will be confidenial and is of course free of charge initially. 

Some of the questions we will initially ask you are:

1. What type of charity are you? Are you a Charitable Trust, a Charitable Company (so a limited company), a Charitable Incorporated Organistion or an Unincorporated Charity. 

2. Do you have a list of up to date members? They will be needed to pass resoltuons to liquidate. 

3. May we see the latest accounts and any forecasts you have done?

4. How many employees do you have and is there pay up to date?

If the conclusion is you are insolvent, and it is getting worse our likely recommendation is that you should stop trading and put the charity into liquidation. Liquidation (or administration if more appropriate) will bring the charity to an end and allow employees to make claims from the Government Redundancy Payments Service. We will take control and close the charity down. This may mean involving other agnecies if you were suppling an essential service to the community.  

If the conclusion of us meeting is you should carry on, then you can do so knowing you have a defence if someone later accuses you or the other trustees of acting improperly.

Some common issues and questions for charities or societies facing financial difficulties

  • Employees If the charity goes into liquidation the employees can claim their arrears of pay, notice pay, redundancy and pay in lieu of notice from the Government. The charity does not have to find this money.
  • Designated funds Charities often have separate designated funds for projects. In insolvency these will usually get mixed into the other assets unless they have been kept separately in a trust. Creditors can usually make a claim on these designated funds.
  • Preferences When a charity is insolvent you cannot decide to pay some creditors above others (even for example if they are local suppliers). All creditors must be treated equally whomever they are. Any payments made as a preference can be reversed under the Insolvency Act.
  • Property If the charity owns a freehold but does not have enough cash to pay all liabilities or creditors as they fall due it is still insolvent. If you as Trustees do not deal with this swiftly a creditor can force the charity into Compulsory Liquidation.
  • Liability of the Trustees What you do not want to do is take on personal liablty for the debts of the charity. It is rare but this can happen if you know the charity finances are getting worse and you do nothing about it. Act now don’t wait. 

Please contact me if you have any questions. You can do this by email if you prefer.  I deal with charities based  in England and Wales. My direct email is at the very top of this web page. David Kirk 24/08/2024.

Email

david@kirks.co.uk

Phone

0808 1961496

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Across the South West, London & Wales

Just a quick email to say a heartfelt thank you for your very calm, considered, expert advice regarding my circumstances on Tuesday. Things looked bleak before you explained my options much more clearly, in simple layman’s terms.
Rob Elliott
Kirks and their team recently advised me on the Members Voluntary Liquidation (‘MVL’) process. They made it very simple for me to understand the process, they kept me up to date with progress throughout the liquidation and expertly answered any queries I had. All interactions with Kirks were highly professional and it gave me confidence that my liquidation was safe in their hands. They promised a straightforward process and certainly delivered – I highly recommend the team at Kirks to assist with your MVL.
Daniel
Kirks provided a very efficient and cost effective service. They offered support and advice throughout the process and made prompt payments. It was a very professional and helpful service.
Richard
We have just had the pleasure of working with Kirks, to complete the closure of my company, everything went smoothly and professionally. I would recommend this company and the staff very very helpful and quickly finalised everything. Thank you Kirks.
Carol Hill
I found you very professional in all my dealings with you. You were knowledgeable and dealt with my case expediently. You answered all my queries on the way in full and everything happened as you said it would in he time frames you outlined in the very beginning. I would have no hesitation in commending you and your company to others
Allan M
We appointed Kirks to manage the process of an MVL when we had ceased trading and found their service to be very straightforward and thorough. A fixed fee arrangement provided us with reassurance and David explained the process clearly to us at the outset. A very professional service all round
David MillsDM digital Solutions
Thanks for all your help guys and for being quick in replying to phone calls and emails
Anon
I have found Kirks Insolvency to be very reliable in terms of their dealings with us as their customers. They are clear in terms of the process and what it entails and are very prompt when it comes to communications. I would recommend their services.
Michale P
I was very impressed with the speed and efficiency with which Kirks undertook the MVL and their help and assistance in explaining the process and resolving any queries.
Anon
Before meeting with Kirks, I had already met with a number of other insolvency practitioners none of whom I considered to be as clear cut and up front as David. The liquidation was executed quickly and professionally and I really am happy that I have done it.
Anon
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Just a quick email to say a heartfelt thank you for your very calm, considered, expert advice regarding my circumstances on Tuesday. Things looked bleak before you explained my options much more clearly, in simple layman’s terms.
Rob Elliott

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