There is so much good work done in Scotland and throughout the world by charitable organisations and volunteers. The work of many of these charities is closely linked and often critical to many areas of our lives. But there are charities whose original aim has been satisfied, otherwise affected by change, or no longer able to provide the service. If that’s the case, then it’s worth considering whether now could be the right time to wind up your charity.
Many charities were set up a long time ago when their aims and ambitions were necessary and relevant. But the world and society move on. In tandem with these changes, charities in Scotland have faced increasing administrative and regulatory requirements, which while imposed for good reasons, can be time-consuming and costly. It seems unlikely that the regulatory landscape will change, so it’s worth going back to basics and revisiting your original strategy to determine whether the operations are something that can and should continue.
It’s sometimes viewed as a failure for a charity to wind up, but I would suggest it’s the opposite and could be a signal of success in achieving its original aims. There can be many positive reasons for a charity to stop its operations, including:
- having achieved its purpose
- recognising that money and assets can be used to better effect elsewhere
- recognising that the organisation is not best placed to fulfil its charitable objectives.
None of these should be viewed negatively and in fact, in terms of good governance, it is positive to have this review.
If a decision is taken that it’s no longer cost effective or efficient for the charity to continue, what should the trustees do next?
The first thing is to review the wind up clause within the charity’s constitution. If there is no wind up clause then, depending on the structure of the organisation, it may have to be referred to the Office of the Scottish Charity Regulator (OSCR) to ask for a reorganisation of the charity to allow the charity to be wound up in the future.
A wind up clause should be flexible. Some constitutions allow for any assets following the wind up to be transferred to any other charity. Others state that any assets should go to another organisation with similar purposes. If the basis for winding up the charity is that your purposes are no longer desirable, or the project has been achieved, then providing money to another organisation doing the same thing may not be the best use of the assets. In cases such as this you may wish to change the wind up clause before asking for OSCR’s consent to wind-up. Again, if you don’t have the power to make such changes, depending on your structure, an application can be made to OSCR to make the changes. If you are a membership charity, it’s important to remember that this is something the membership will be need to vote on under a special resolution.
You need OSCR’s consent before any wind up, and it’s important they are engaged early in the process. They will provide approval in respect of where the funds should be transferred on wind up. It’s possible to make grants before the wind up application if there are other things that you would like to achieve which do not fall in line with the wind up itself, provided, of course, that they are within your charitable purposes.
Finally, take care about the costs of winding up. There may be financial obligations to staff with redundancies. Or if you are transferring your operations to another organisation, will current staff move across under the TUPE regulations? Consider any contracts that may need to ended and the financial implications of doing so. It’s critical that the trustees assess all costs and include them in the OSCR application, to avoid the prospect of the charity becoming insolvent on wind up.
While it very much depends on the charity, a reasonable timescale for the completion of a wind up would be just over a year ie, the decision taken, subject to membership and OSCR approval, and then a year to carry out the due diligence required before the OSCR application and then a further few months to finalise matters. It’s also important to remember that final accounts may need to be submitted to OSCR (depending on the timing in your financial year) so cash should be withheld for those purposes.
There’s a lot to consider when winding up an organisation, but it should not be something that trustees avoid or are scared of. There’s a lot of duplication in the sector in terms of aims and ambitions and streamlining can be an effective way of ensuring more funds go towards achieving the charitable purpose rather than duplication of administration. Gillespie Macandrew are part of the SCVO Pro Bono Service which gives up to two hours free legal advice to SCVO members. If you have any questions about winding up, or any other legal matters, get in touch