New Measures Introduced to Help Protect Charities from Insolvency

We are now beginning to see a progressive easing of the government’s lockdown that began back in March. At the time, the government acknowledged the potential governance and financial issues that many companies would face as a result of the COVID-19 pandemic, and promised that it would pass legislation to help deal with this.

We now have that legislation in the form of the Corporate Insolvency and Governance Act 2020 (the “2020 Act“). The new provisions in this Act are equally applicable to charitable companies and CIOs as they are for profit-making companies, and so will have relevance for many charities in need of assistance. The Charity Commission has recently updated its COVID-19 guidance to reflect this.

The key changes for charities are as follows:

• Permission to delay general and other meetings – Some charities and not-for-profits have not been able to hold annual general meetings (AGMs) and other critical meetings that have timing requirements due to restrictions in their governing documents or statutory law. The 2020 Act allows AGMs that were planned to be held between 26 March 2020 and 21 August 2020 by a CIO, charitable company or registered society to be delayed until up to 30 September 2020. Additionally, the government has the power to extend this September deadline if it thinks it is needed.
• Relaxation of rules surrounding electronic meetings – Where a charity’s governing document does not specifically forbid meetings held online or by telephone, the trustees can decide to hold a meeting this way, and as usual they should document their decision to do so for good governance. However, where this is not the case, specific provision has been made for meetings of members (not trustees) of CIOs, charitable companies and registered societies, as follows:
  • Meetings can be held by electronic means even if the governing document requires physical, face-to-face meetings;
  • Members still have the right to vote but they can be required to do so electronically or by post; and
  • Members will not have the right to attend in person or participate, except to vote.
• Protection from insolvency – Importantly, the 2020 Act has introduced a range of measures to help incorporated charities to continue operating and avoid insolvency during the pandemic, including:
  • The creation of a moratorium, a period in which no legal action can be taken against the company, which offers breathing space from debt enforcement action so charities can explore options for rescue or restructure;
  • Limiting suppliers’ right to use termination clauses in supply contracts, to provide for continuity of supplies to charities and allow them to continue to operate;
  • Temporary suspension of wrongful trading liability, allowing trustees to continue operating a charity through the pandemic without the threat of personal liability;
  • Temporary suspension of the use of statutory demands and a restriction on winding up petitions; and
  • Support for viable charitable companies struggling with debt to restructure under a new procedure (note that these provisions do not apply to CIOs).

For further information, you can access the Charity Commission’s updated guidance here and read a more detailed explanation of each of the new measures here.

If you would like any support or assistance with anything we have touched on in this blog post, or with any other challenges that your charity is currently facing, please let us know. Blake Morgan has a wide range of teams that can help you with managing the challenges presented by coronavirus.

Our charity team has a particular expertise in risk management for charities and we offer some guidance on this on our dedicated page here.

If you have any queries about the guidance above, or there are any other issues we can help you with, please do get in touch with Ben Brice or Laura Sherratt.