Ten top tips for charities responding to COVID-19

While many charitable causes have more need than ever, the donation of cash to charities from the public and benefactors is almost certain to be less than in previous years. This article suggests a range of options available to charities to help then survive the COVID-19 crisis.

1. Unlocking existing resources

Many charities have substantial assets which have restricted uses, such as a capital assets left to the charity; however, only the income is available for use. Charity trustees should review these assets and consider whether they can be unlocked for general purposes using the provision of the Charities Act 2011. Applications can be made to the Charity Commission or in some cases the High Court to enable all or part of these funds to be released for general purposes.

Accessing reserves might also be necessary. Reserves are held to cover situations where income levels fall and charity trustees should consider accessing these funds to carry the charity through these difficult times.

Governing boards may also want to consider extending the reach of their fundraising operations to new contributors, both donors and providers such as the Reclaim fund, which can donate to charities from certain money left unclaimed in bank accounts.

2. Cost cutting and rationalisation

One obvious short-term measure that can be taken is to reduce the amount of charitable expenditure. This will be a difficult decision to take but it might be necessary to prevent the charity from going into insolvency. Break clauses in leases should be looked at and, given the state of the commercial property market, charities should be prepared to discuss rent holidays and discounted rent with landlords.

3. Collaboration

Collaboration with other charities could involve sharing costs or matching charitable funding. The collaboration could be contained in an agreement or a memorandum of understanding. A temporary collaborate arrangement could be a way of testing the water for considering a merger.

4. Merger

A merger to combine resources might need to be considered. Mergers come in all shapes and forms, from becoming a subsidiary of a larger charity through to a full merger. It might involve one charity ceasing to exist or it might mean both charities merging into a new charity with parity on both sides.

5. Review of governance

With increased nervousness around the potential for financial liabilities, charity trustees should ensure that they are adequately protected through limited liability, insurance and indemnities. Asset protection and a review of the skillsets of trustees should also be considered.

6. Trading subsidiaries

This could be the moment to review whether your trading company is profitable? If the trading company is a drain on finances in terms of funding and commitments (including profit shredding covenants over a period of time), it could be the moment to put the company into liquidation.

7. Apply for COVID-19 charity grants and fundraise

The Government and many grant-makers are providing funds for charities to tide them over the COVID-19 crisis. The general public showed how generous they are during the COVID-19 crisis by giving to the NHS. Appeals to help charities in trouble due to COVID-19 or providing COVID-19 relief should be considered.

8. Borrowing

A bank loan to deal with what we hope will be a short-term problem is an option for charities. Interest rates are low and borrowing is a viable option at the moment. Government-backed loan schemes such as the Coronavirus Bounce Back Loan Scheme and the Coronavirus Business Interruption Loan Scheme are available to charities. These schemes are temporary but may be extended.

9. Realising assets

It might be a good time to realise property or other assets which are not essential to the charity. COVID-19 has raised serious questions about the need for office accommodation and this might encourage charities to downsize in this respect.

10. Take advantage of the changes in the law and regulation of charities.

A range of measures have been introduced to help charities including a relaxation on the timing of accounts and AGMs through to the temporary suspension of “wrongful trading” for company directors.

Wrongful trading is a provision applied by the insolvency legislation that can impose personal liability on directors where they failed to take every step to minimise losses to creditors, after they knew or ought to have known that insolvency would be inevitable. The Government has provided that the court is to assume that a director is not responsible for any worsening of the financial position of a company or its creditors during the period 1 March 2020 to 30 September 2020. The suspension of the usual rules has not been extended beyond September 2020.

The wrongful trading provision has sometimes been described as a paper tiger, with the courts seemingly more reluctant to order personal contributions from directors than creditors and insolvency practitioners would like. It may be felt that the coronavirus provision muzzles this tiger still further, but that remains to be seen – after all, assumptions can be set aside by compelling evidence. Directors and trustees who have been deliberately or recklessly continuing to trade throughout March to September may yet discover that the wrongful trading cat still has claws, not least for periods before or after this apparent exemption.

Regulations, which came into force on 27 June 2020, extend filing deadlines for charitable companies. The deadline for filing accounts and reports has been extended from 9 to 12 months and the 14-day deadline for filing the annual confirmation statement and certain notices has been extended to 42 days. The 21-day deadline for registering a charge has been extended to 31 days. These extensions expire at the end of the day on 5 April 2021. Companies House has also introduced a temporary service to enable forms that could only previously be delivered in the post to be completed and uploaded electronically. This includes the form to change a charitable company’s objects.

So far as AGMs are concerned, regulations gave charitable companies a window of opportunity to extend the period within which they could hold an AGM came to an end on 1 October 2020. However, there are regulations in place until 30 December 2020 that allow charitable companies and CIOs to hold AGMs and other members’ meetings in a way that would prevent the spread of COVID-19 (for example, over a video link) and allow electronic voting. Unincorporated charities which cannot take advantage of these regulations can take reassurance from the Charity Commission’s pragmatic approach where members’ meetings need to be postponed, or held virtually, to comply with social distancing. For example, Charity Commission guidance says that, despite restrictions for meetings of more than six set out in COVID-19 regulations, charities can hold charity trustees’ (and members’) meetings of larger numbers where these are “necessary for providing charitable services”. Charity Commission guidance also shows an understanding that virtual meetings may not be permitted by a charity’s governing document. The Commission says that, in these circumstances: “Where there is no such clause in your governing document and you decide to hold meetings over the phone or using digital solutions, we will understand but you should record this decision and that you have done this to demonstrate good governance of your charity.”

The Charity Commission has said that, wherever possible, charities should try to submit their annual reports in time. However, where the COVID-19 situation impacts on the completion of annual returns and accounts, charities with an “imminent” filing date can email the Commission.

In conclusion, it can be seen that there are various tools and tactics to help charities through the present crisis. If a charity is thinking about using one of the tools or tactics above, it is sensible to seek legal advice. Directors and trustees should contact our specialists Robert Meakin and Mark Parkhouse using the details below.

Further information and guidance from the Charity Commission can be found here.