A variety of companies and charity organisations, including Community Interest Companies (CIC) and Charitable Incorporated Organisations (CIO), do also require winding-up at times. As with all of our clients, BRI are here to assist with insolvency procedures for charity organisations and the like.
Insolvency Procedures for Variety of Charity Organisations
It is, unfortunately, the case that even those who are set up to only support and help a community can also suffer financial hardships. It is also true that sometimes, like with limited companies, the purpose of the organisation has been served and it now wishes for an orderly winding-down of its affairs. As with any business reaching the end its life, the list of the reasons why this may happen are almost endless, however, BRI Business Recovery and Insolvency have a huge wealth of experience which enables them to review the financial position and assist with an orderly winding down of the organisation or charity if required.
Managing Finances For Different Types of Organisations
Charities limited by guarantee, friendly societies and CICs are all different types of organisations that we have assisted in insolvency procedures and guidance. This is in addition to the much more common type of company limited by shares. These entities will have a different approach to how they provide services and manage their finances, with the priorities defined within their constitution or articles of association detailing how they will serve a community as opposed to how they will make income.
The very fact the organisation has a primary purpose other than enhancing shareholder value (i.e. growing their business and profits) creates a situation which encourages decision making that is low in risk. Low-risk thinking can help directors to make sensible decisions which safeguard an organisation’s finances but at the same time, risk is inherently a part of running a business and making profits will often involve making plans for and investing in, the future – something which charitable organisations are not always in a position to do. Often with all available funds being utilised for the day-to-day needs of the entity.
If the funding for a charitable organisation runs out or the organisation is no longer able to raise funds via any other means, then the possibility that insolvency will follow is very real. Although, at times, one may expect that more goodwill/lenience may be extended to charities than other companies, if leases, loans , overdrafts and other transactions have been entered into, then financial commitments exist which can lead to the requirement for a formal insolvency process.
Charitable Companies and the insolvency Act
The Insolvency Act also allows for companies other than those limited by shares also to be wound-up. The process with respect to the winding-up procedures for charitable organisations is somewhat similar to that of limited companies but with the added factor that the constitution of the organisation may introduce or prohibit certain requirements/actions that are outside of the insolvency ‘norm’.
BRI and Insolvency Procedures with Charity Organisations
In several instances we have consulted with an organisations rules as per their constitution in order to ensure that the initial notices and meetings utilised to commence a winding-down process are legally binding and not open to challenge. This has involved BRI staff attending large meetings of members outside business hours to satisfy the requirements of a constitution and to reassure those individuals impacted most by the winding down that BRI are big enough to deal with the insolvency process and small enough to care about committing time and effort to attending to the individual requirements of the matter at hand. On one occasion when dealing with a friendly society organisation, the 200 members plus in attendance broke out in a round of applause at the end of the meeting to recognise how we conducted the matters, even though we were sadly delivering bad news to the members. However, if you treat others the way you want to be treated in the same situation, then often a positive situation can be achieved when dealing these types of organisations.
The key to managing the different challenges presented by each winding-up process is to take a back to basics approach and to first consult with the relevant articles of association and/or constitution, alongside any legislation that may relate to the specific sector within which the organisation operates (this can impact such outcomes as to where surplus funds should be distributed). The devil will be in the detail with respect to what steps need to be taken in order to ensure that the winding-up process used for the specific entity is valid and binding.
Work with BRI Business Recovery and Insolvency
If you or any of your clients work within a charitable organisation and wish to seek guidance as to carrying out an orderly winding down of its affairs, or have questions about insolvency, please do not hesitate to contact us. You can speak to BRI Business Recovery and Insolvency for free, no obligation advice from a company which has assisted many similar organisation before.