Small Charity Insolvency and Insolvency Practitioners
Large rise in Small Charity Insolvency. What Options are there for the Financially Troubled Charity?
According to the Charity Commission, there are just over 168,000 registered charities in the UK, as of September 2018, with an annual income of £77 billion. There are in the region of 950,000 Trustee roles and nearly 865,000 employees. Apart from the vital work they do, charities are, therefore, big business in the UK, but like many business sectors they are feeling the pinch, especially in the small charity sector, with a rise in charity insolvency. This article from our London team focuses on the particular difficulties faced by smaller charities and how insolvency practitioners can help those in financial difficulties.
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How Many Small Charities are There?
The Charity Commission records that there are c.123,000 charities with annual income of £100,000 or less, which represents 73.3% of the total number of charities and just 3% of the total annual income of charities. When including those charities with annual incomes of £100,001 up to £500,000, the numbers increase to 145,714 (86.7% of the total number), which account for 9.4% of total annual income.
What are the Key Issues Facing the Sector?
Starting from the 2009 recession and continuing with donor fatigue and the Government’s austerity measures, which in the case of some small charities took away their only source of income, charities have been feeling the squeeze. This has been compounded by rising costs and an escalating demand for their services.
Angela Styles, the interim Chief Executive of the Small Charities Commission said in February 2019 that:
“We know it’s a particularly turbulent economic period for small charities, which are predominantly volunteer-led and largely dependent on individual donors.”
The figures, as reported by Third Sector, show that the number of small charities disappearing from the Charity Register has significantly increased by 245 in the 3 years to 2018. In detail, the numbers reveal that, in 2016, 3,856 charities with incomes of less than £1.5m left the register, while 4,069 left in 2017 and 4,783 left in 2018.
Given the difficult circumstances facing small charities, Angela Styles summarises that:
“..It’s not surprising that there is an increase in the number of small charities that are struggling to survive in 2019.”
What is the Role of Management?
It is common for the smaller charities to be run by trustees, who are usually unpaid and might only attend meetings on a monthly or quarterly basis and therefore are not involved in the day to day management. Indeed, as Civil Society shows, trustees play a governance and executive role in over 80% of charities. This is why trustees need to take great care if the charity is experiencing financial difficulties and must make every effort to monitor progress carefully and, if necessary, take insolvency advice at an early stage.
Insolvency Practitioners and Charity Insolvency
The test for the insolvency of a charity are the same as those used for a normal company or individual. For example, the cash flow test – is the charity able to settle its liabilities as and when they fall due; or the balance sheet test – is the value of the assets less than the liabilities. Trustees also need to take particular care if they are holding restricted funds and also be aware of the issues of trading whilst knowingly insolvent.
The options available to the trustees of a financially troubled charity include:
- Seeking fresh investment
- Sale, possibly to the founders
- Merger with a larger charity
- Controlled wind down through liquidation to reduce disruption and maximise value for creditors
- Sale out of administration or liquidation
A successful outcome as a result of choosing any of these options will depend on careful planning which will include professional advice, from an Insolvency Practitioner such as Antony Batty and Company.
The chances of restructuring and turning a charity around are improved the earlier advice is taken. At Antony Batty and Company, Here at Antony Batty & Company, we are experienced in acting for clients in the charity and not for profit sector that have entered into insolvency or are experiencing financial difficulties that are likely to lead to insolvency. When it comes to charity insolvency, our efforts are focused on working towards the best possible outcome. Take a look at some of our testimonials from Charities.