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Charities – If the Books Don’t Balance

In the current economic climate, many charities are finding it difficult to make ends meet. Michael Overend, a lawyer at Hungerford and Swindon law firm, Charles Lucas & Marshall, who specialises in charity law, looks at some of the concerns facing trustees.

I am worried about the financial position of the charity. What should I do?

As part of the regular review of the charity’s finances, you should be monitoring your actual spending and income against budgeted spending and income and also your cash-flow projections. Ensuring the information you are given is accurate and timely is critical to your being able to monitor the financial position of the charity, and this should be done as often as is necessary to ensure that the trustees are able to make informed decisions.

You should also analyse your balance sheet as there may be future commitments and certain contingent liabilities which may not be shown on the balance sheet, and which may affect your decisions and cash-flow forecasts if it becomes necessary to re-structure the activities of the charity. These may include, for example, the costs involved in making staff redundant, sums due to a landlord if you were to move premises, or compensation due under a contract if you to try to reduce the scope of the charity’s activities. You should also be aware that if there are restricted funds, or permanent endowment, you may not be able to use all of these assets in meeting the charity’s liabilities. You should take legal advice in relation to these matters.

If you conclude there is a risk that the charity may not be able to meet its liabilities as they fall due, or in the event of re-structuring or a closure, you should take advice from the charity’s accountant before undertaking any significant changes in the way the charity runs. You should ensure that their advice is in writing and is considered by the full trustee body.

If the charity is insolvent, will I be liable for its debts?

If the charity is a charitable company it will have a separate legal identity, and as such, all of its debts will be those of the charitable company and not the individual directors. However, directors can be personally liable in some specified situations, including if a loss to the charity arises from a breach of fiduciary duties, and in some circumstances prescribed by the Insolvency Act.

If the charity has been established by a declaration of trust or it is an unincorporated association, any contract or other legal obligation will have been entered into by the charity trustees on behalf of the charity. Provided that the trustees have acted properly and within the charity’s trusts, the charity would normally be able to reimburse the trustees, but if there are insufficient funds within the charity to do this, the charity trustees may end up having to meet these debts and liabilities personally.

For further information contact Michael Overend on, or 01488 682506 or 01793 511055.

Below an Interactive Map of all UK Charities, published by the Charities Comission.

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Written by
Michael Overend

September 16th, 2011 at 3:12 pm