Charities monthly round-up – October 2024

Updated guidance on managing financial difficulties and insolvency

The Charity Commission’s recent blog announced an update to its Improving Your Charity’s Finances (CC12) guidance (originally published in 2016 as Managing a Charity’s Finances: Planning, Managing Difficulties, and Insolvency). The revised CC12 has been divided into three parts for better clarity.

The first section is designed for all charities. It outlines the collective responsibility of trustees – regardless of their financial expertise – to actively monitor and review their charity’s financial status to mitigate the risk of financial difficulties. It also offers strategies for trustees to improve the situation of charities facing financial challenges (but are not yet insolvent). Recommendations include reducing costs, exploring additional income sources, reviewing funds and assets for potential release and considering options like merging with another charity or even closing the charity.

Importantly, the guidance emphasises the necessity for trustees to seek expert advice when evaluating their options. The subsequent sections focus on the necessary steps for trustees if their charity is insolvent or at risk of insolvency. These sections are differentiated between charitable companies or charitable incorporated organisations and charitable unincorporated associations or trusts. Additionally, the Charity Commission (the Commission) has developed a concise checklist to help trustees assess insolvency risks.

This update is part of the Commission’s ongoing effort to make its guidance more accessible and user-friendly, aiming to increase its usage among charity trustees. However, some practitioners have expressed concerns that the simplified guidance may lack essential legal nuance and has undergone limited user testing rather than a comprehensive public consultation.

If you would like advice on matters relating to charity insolvency, please contact Edwina Turner or Sarah Tomlinson.

Employment update

Our employment team have published various blog posts which may be of interest to readers:

• Anna Dabek, a partner in our employment team has recently written an insightful article on the rise of whistleblowing in charities. The article states that the Commission’s latest report shows a 72% rise in whistleblowing disclosures, driven primarily by governance failures, safeguarding concerns and financial issues. 54% of these disclosures come from employees. Anna highlights the need for charities to strengthen their internal whistleblowing frameworks, ensuring clear reporting channels, training and transparency to mitigate risks and foster trust. If your charity does not already have a whistleblowing policy we would advise you to consider putting one in place.
  
• Libby Hubbard takes a deep dive into the new Employment Rights Bill, exploring whether it will bring generational change. The Bill introduces significant changes, including removing the two-year qualifying period for dismissal, measures to regulate zero-hour contracts, default day-one rights for flexible working and reinstating third-party harassment protection. Consultations start in 2025 and full implementation is not expected before autumn 2026. Charities, often reliant on diverse workforces, including zero-hour contract staff and volunteers, will need to adapt to the new rules around guaranteed hours, shift notices, and parental leave, ensuring compliance with these changes to maintain fair and transparent workplace practices for any employees.

If you need assistance with any employment issues including drafting policies and charity registration, please contact Faye Rush.

Lessons from Fashion for Relief as trustees are disqualified after a series of severe mismanagement issues

On 26 September 2024, the Commission announced the disqualification of all three trustees of Fashion for Relief (FfR), following a statutory inquiry that uncovered serious governance and financial mismanagement issues. The trustees received disqualification periods ranging from four to nine years.

One key finding of the report was the trustees’ failure to regularly review and justify their fundraising methods, which led to mismanagement. While there are no fixed legal standards for fundraising costs, trustees must ensure that fundraising practices align with the charity’s best interests. Proper documentation of decisions and a thorough review process are essential, areas where FfR’s trustees fell short. They were also criticised for not obtaining alternative quotes for expenditures, which could have helped control costs more effectively.

The inquiry emphasised that while it is acceptable for charities to cover certain travel and subsistence expenses, these must be reasonable and properly recorded. Despite one trustee’s high profile (Naomi Campbell), the trustees were collectively responsible for ensuring prudent financial management and acting in the charity’s best interests. Following these issues, FfR has been wound up and removed from the charity register.

This case serves as a reminder of the critical importance of strong governance, transparency, and accountability for all charity trustees. Proper oversight and decision-making processes are essential to ensure a charity operates effectively and ethically. (Edwina Turner and Phil Watts served as the interim managers of FfR).

If you would like advice on matters relating to trustee governance and decision-making, please contact Edwina Turner or Phil Watts.

Charity Commission issues official warning to Christian education charity

Earlier in the month, the Charity Commission announced that it had issued an official warning to the National Council for Christian Standards in Society (NCCSS), a Christian education charity. The charity failed to act on the Commission’s advice. The charity now has four months to demonstrate that it has taken steps to separate its charitable activities from the political lobbying efforts of Christian Voice, a non-charitable, connected organisation. Additionally, the NCCSS is required to clarify its purposes to ensure they are exclusively charitable.

This serves as a crucial reminder to charity trustees that failing to follow the guidance or advice provided by the Commission may be viewed as misconduct or mismanagement, potentially leading to further regulatory action. Trustees are expected to act promptly and effectively when given such advice to ensure the proper governance and administration of their charity.

If you would like advice on matters relating to trustee duties, please contact Edwina Turner or Catherine Gibbons.

Refusing or accepting donations? What to believe

You may remember in our March 2024 edition we referenced the publication of the new guidance setting out the rules for trustees to follow when deciding whether to accept donations.

Following the Charity Law Association conference, some legal professionals challenged the regulator on the published guidance questioning its rationale. It was clear that there are reservations from practitioners as to whether the guidance is legally correct and whether trustees can use general catch-all powers or a power to dispose of property to return a donation.

The Commission has stated that their guidance is accurate and is written for trustees, not lawyers. As a starting point, the Commission states that charities may keep donations where they further a charity’s purpose. They must also make their decision in line with their legal duties by following the guidance in conjunction with the decision-making guidance.

For more information on charity donations, contact Sarah Tomlinson.

Charity Commission casework and registrations data 2024 to 2025

As of June 2024, there were 170,394 charities registered with the Commission, with a total annual income of £97.46 billion. Between April and June 2024, 1,223 new charities were registered, 2,449 registration applications were submitted and 996 charities were removed from the register. This shows that just under 50% of registration applications were successful, emphasising the importance of clearly explaining the charity’s activities and public benefits to ensure successful registration.

At Anthony Collins, we handle approximately 100 charity registration instructions per year with the Commission, and it is incredibly rare for an application to be unsuccessful (albeit with a fair share of battles). Many organisations approach us after an unsuccessful attempt. While professional advice does involve costs, it can save significant time in the long run – either by facilitating successful registration or by identifying early-stage issues that could prevent registration or that need to be addressed to streamline the application process.

If you need assistance with a charity registration, please contact Katie Crosbie.

For more information, please contact this month’s editor – Edwina Turner. Edwina heads our charities governance work. She has extensive experience working with national and international charities, advising on restructures, mergers and internal governance. The Commission regularly appoints Edwina as an interim manager of charities that are subject to statutory inquiries. She also works alongside boards and chief executives, to advise and mentor them through difficult changes aiming to make them as simple and as positive as possible. Edwina has a particular passion is to help faith-based charities achieve their goals and vision.

• Share this