I can also provide advice and consultancy services for not-for-profit organisations and registered charities planning a controlled and well-managed closure.
I have compiled this information based on my experience of successfully overseeing the entire spend out and closure process of a UK charity in 2009, and assisting others in an advisory capacity. There is helpful advice available from the Charity Commission and other organisations and I have also compiled some pages on Directors' liability and useful care law if you are considering winding up for financial reasons (please see below for further information and links). In addition I can sit down with you and help plan what this would mean in your organisation, and answer questions such as:
- How can you protect your organisation's legacy?
- Is it better to merge with another organisation or to close?
- What will you do with your assets and equipment?
- How will you be able to instruct your bank to close your bank account if you no longer exist?
- How will you be able to pay for any goods and services you may still need once you've closed your bank account?
- How can you reduce your bank balance to zero, but not risk being overdrawn due to unforeseen expenditure or unexpected bank charges?
- How can your Trustees sign off the final accounts for an organisation that no longer exists, since this means that they are therefore no longer Trustees?
- How will you pay your accountants for producing these accounts since you've reduced your bank balance to zero and closed your account?
The “spend out” model, in which trusts and foundations spend their assets within a designated timeframe, has not been as widely adopted in the UK as in the USA, and there is little information available to help donors, trustees, and staff in the UK who may wish to consider a spend out plan. However, more organisations are actively considering this route, either for strategic, mission-related, or financial reasons.
This is a summary of the key points to be borne in mind when planning for closure. At the bottom of the page you will also find a list of external links giving helpful advice.
Attention to detail
It can be easy to be caught out by unexpected costs – e.g. invoices for contracts that should have been cancelled, penalty clauses when cancelling maintenance agreements, insurance etc. It’s a good idea to look back through all invoices and check dates and terms. At least a year before closure start making a list of annual subscriptions/agreements as they come in and decide how you’ll deal with them (cancel immediately, renew, but for a restricted time, etc.). There’s really no substitute for keeping on top of the detail, although it can be quite time-consuming.
You might want to consider drawing up formal compromise agreements between the organisation and all staff and Trustees regarding final payments and any conditions attached. There is general information on them here:
Even if people seem supportive of the decision to wind up an organisation, things may look different as closure approaches, or afterwards, especially if they’re persuaded by others with a vested interest in making money from the situation or just causing trouble. People don’t always behave predictably, so it’s worth having a serious look at these agreements.
Your former funders may want to have a say in what happens to your assets on closing down. Will any assets still have a book value at that time? Even if not, they will be listed in your Register of Assets, so you need to document what happens to them. It would be wise to see what your governing document says about disposal of assets and check with your former funders whether they have any stipulations.
Other organisations may be reluctant to take things that are a bit past their prime, so you can’t assume that things will be welcomed with open arms and you may need to budget for disposal. This may be particularly true of PCs if you plan to give them away – at the very least they’ll need to have their hard disks wiped in an approved manner (for data protection) and everything needs to be signed off properly. If you’re scrapping them it’s not such a problem as physical destruction should be adequate, but make sure you document this.
In general it’s important to leave a clear audit trail of what you’ve done with your assets, so take care to document everything clearly.
Key financial and personnel documents will need to be kept for 7 years for audit purposes. You’ll need to draw up a list of what to keep and think about who will do this and whether they’ll need paying. It would be worth asking your former funders or your accountants whether they’d be prepared to do this. Any sensitive paperwork not being kept will need to be properly destroyed – there are firms that will do this and provide a certificate of destruction.
Communication after closure
Someone will need to continue to be the contact person after closure. It might be possible for some enquiries to be handled by whoever takes on your paperwork, but it’s advisable to have a dedicated person who knows the organisation dealing with matters on a part-time basis for at least three months after the official closure date. This could be a Trustee or a former employee. This can be an important part of assuring your legacy, both practically and from a PR point of view, so that you don’t just leave a void that can be filled with all manner of gossip and rumours once the organisation no longer exists.
How will you ensure the work of your organisation is not forgotten? Your website could become a digital archive of your achievements, but you'll need to set aside a small budget to have someone at least handle domain name and hosting renewals. Do you want to set up a physical archive of your work? If so, you'll need to identify a suitable body to host this, for how long, and what it would cost.
If your charity is VAT registered, don't forget to de-register. It can pay to time your de-registration carefully because you can't claim for VAT on any goods you buy after your registration is cancelled. But you can still claim relief for VAT on services supplied to you after your registration was cancelled, as long as these relate to your normal business activities and you do this within three years of the date of invoice. So, for example, you can still re-claim the VAT on the final invoice from your accountant for preparing your closure accounts. Or you can ask HMRC to delay cancelling your de-registration for up to six months. There's more information on HMRC's website: http://www.hmrc.gov.uk/vat/managing/change/cancel-reclaim.htm
Bodies to inform
You should inform the Charity Commission, Companies House (if you’re registered with them) and HMRC at the very least. It’s worth using all the professional bodies you can for free advice and possible help, so set up meetings with your accountants, auditors and former funders to discuss your plans.
Closing down an organisation has certain things in common with undertaking a DIY project: even with the best-laid plans it will take longer, be more complicated and more expensive than you thought. And no matter how well-prepared you are, the unexpected will happen, so flexibility is crucial.
Charity Commission information on how to close or merge a charity:
Charity Commission guidance on dissolution and removal from the register of charities, for charities with annual income under £5 million:
Charity Commission guidance on dissolving a small charity, for charities with annual income under £20,000 and assets under £200,000:
Charity Commission guidance on managing financial difficulties and insolvency in charities:
Newcastle CVS Information Sheet – Scroll down to the "Closing down" section for information on closing a registered charity, a charitable company and a voluntary or community organisation:
Additional information for Directors
Company insolvency and Directors' liability
You are strongly advised to also consult your accountants and solicitors for specific legal advice. This site is not meant to replace their particular areas of expertise.
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