Charities/Not for Profit
Despite the work of trustees in planning for financial stability, often charities and not for profit organisations become insolvent for reasons beyond their control.
Public spending cuts, falls in investments and reduced voluntary donations & legacy gifts have created insurmountable financial strains for many charities and not for profit organisations. Some are even left with liabilities due to actions taken long before current trustees are involved – e.g. final salary pension schemes that may have closed to new entrants many years ago.
Whatever the reason for the difficulty, Charity Insolvency is a serious matter and must be dealt with promptly and professionally.
Insolvency is defined as either a situation where liabilities exceed assets or debts cannot be paid as and when they fall due – e.g. by not paying suppliers or taxes on time.
Trustees have huge responsibilities in their roles, with those involved in a company structure having even greater responsibilities under the Companies Act. Breaching those responsibilities can lead to serious personal financial consequences, even where the charity or not for profit organisation is incorporated into a limited company structure. Those trustees who are professional trustees (solicitors, accountants, etc) are the most at risk when in an insolvent charity or insolvent not for profit organisation.
Some trustees inadvertently breach their duties by dipping into restricted reserves to aid cashflow, but actions like this can have dire consequences for the trustees if the charity is forced to enter into an Informal insolvency procedure. Not only that but in the event of the charity closing those actions are very likely to see all restricted funds being reclassified as unrestricted and available for all creditors.
Our Work with Charities
We have worked with a large number of charities and we understand the difficult emotional wrangles many trustees face. The greatest barrier is often accepting that fulfilling the objectives of the charity may no longer be the primary objective once an insolvent position is reached, it is to ensure the position for creditors is not worsened. For some this means closing the charity with immediate effect. We know very well how difficult this is and how many people it could effect from employees to users of the services provided.
Our work with charities and not for profit organisations to develop solutions that are unique to them and have never been done before is shown through the matters we have dealt with. We are truly pioneering in our solutions and the way they are delivered.
If you want a solution for your charity or not for profit organisation, contact Kevin Lucas of this firm today. We have restructured and rescued charities with debts 100 times greater than their annual operating surplus, we have saved charities on the brink of closure by trading them in administration whilst a new provider or charity is found to continue the good work whilst providing seamless continuity of services to their users. Inevitably though we have also helped many into liquidation in ways that minimise the impact of their closure on all stakeholders.
Whatever the situation, contact us to talk it through. It might be that some reassurance on your approach is all that you need.