Many Scottish Charities face an existential threat from the Covid-19 crisis.
The pandemic has caused Charity shops to close, fundraising events to be suspended and donor ability to give decimated. However, for many charities demand has never been higher.
The regulatory burden on Charity Trustees has never greater with Charities already having to work hard to deal with changes to safeguarding and corporate governance. Scottish Charity Trustees are often subject to two sets of duties. Firstly, they have duties imposed by Charity law and regulated by OSCR. Secondly they have duties imposed by the Companies Act (if the Charity is a company limited by guarantee) or under Trust law (if the company is a Trust). These dual duties mean that Charity Trustees could face personal liability if they do not face up to solvency issues and make the position worse for creditors.
Here are some practical tips for charities in the pandemic:
- Check the extent of your Trustee and Officer insurance to establish whether in a worse case your Trustees will be indemnified against a personal claim because of alleged negligence;
- Consider alternative funding sources for example online or perhaps direct government/local authority help for particular services;
- Retain a specialist insolvency lawyer or insolvency practitioner to review the business of the charity (including service contracts, staffing numbers, areas of operation, overheads) and prepare a crisis management plan and then a restructuring plan;
- Implement the plan even if it is difficult and involves cost cutting;
- Meet more regularly remotely as a Board if there are any financial difficulties and document all decisions so there is an audit trail to show what was decided and why; this is vital if ultimately the Charity ends up in insolvency, Charity Trustees are investigated and there is a question about what was decided;
- Take advantage of any relevant government or local authority help;
- Develop or amend the Charity communications strategy so that all stakeholders are given transparent and appropriate information.
BBM are experienced in advising charitable organisations in distress. We are happy to have an initial no-obligation discussion with charities about their position, and how we may be able to help. Contact Eric Baijal who heads our Insolvency and Restructuring team for more details