COVID-19: Projections for the future of the charity sector

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  • COVID-19, brings huge challenges for the charity sector both now and, in the future. Charity services are in more demand than ever, but income simply isn’t matching this. To continue operating, charities must adapt to protect both those they exist to benefit and their long-term financial sustainability.
  • From a governance perspective trustees must steer their charity through two phases of these testing times, not knowing how long the first will last:

Emergency Phase

Trustee meetings and other meetings

Despite lock-down, decisions still need to be made and business carried out. The Charity Commission and OSCR are putting the emphasis on Trustees making the best decisions they can, not the technicalities of how decisions are made. For charitable companies, proposed legislation currently before Parliament may help with the timing of holding AGMs but this still does not address the practicalities of how meetings are to be held.

How?

For both Trustee meetings and AGMs or other member meetings, obviously safety comes first. Social distancing needs to be observed, so governing documents need to be checked and possibly amended to ensure valid decisions can still be made. Where possible, advantage should be taken of electronic means including video meetings and telephone conferences (where all participants can properly identify one another) whilst adhering to the provisions in the charity’s governing document on the procedure of meetings (notice, quorum, written resolutions and unanimous or majority approval). It is easy to fall into the trap of thinking anything goes at the moment and whilst retrospective ratification may be an option, if at all possible, getting it right at the outset is always best. Remember an exchange of emails is NOT a meeting

What?

During this phase, Trustee meetings are advised to focus on:

  • Immediate cash flow management
    • Identify and stop/ delay non-essential outgoings. Invoice for all services and chase outstanding debts.
    • Collaborate with other charities with similar aims to share resources and increase overall efficiencies, for example through use of technology
    • Consider what government measures are available to support the charity
    • Consider using reserved or restricted funds if accessible and beneficial
    •  
  • Keeping the charity’s longer-term operations and finances under regular review:
    • Planning for the recovery of the charity; but also
    • Considering closing the charity and the trigger points that will indicate this is needed. The government has outlined some proposed relaxations for companies to insolvency law and directors of charitable companies should take advice on the impact of this.
    • Report any serious incidents to the Charity Commission who have recently issued updated guidance and COVID-19 with specific examples
    • Consider whether the charity should become incorporated, if it isn’t already, to offer trustees reduced potential personal liability.

All finance-related decisions should be taken by the trustees collectively, and significant decisions and action points noted in writing.

All decisions must still be made in the charity’s best interest, with carefully applied skill and experience.

Recovery Phase

The need for services and benefits provided by charities will continue unabated. It is important to understand however, that some will be even more vulnerable after the lockdown if the economic downturn continues.

There will be new opportunities arising for those that are nimble and adaptive. Collaboration, rationalisation and restructuring within the sector could provide very real opportunities for efficiencies in operations, processes and the use of assets as they did in earlier economic downturns. Whilst many charities will struggle and may not survive, there will also be new charities and new projects of existing charities being set up in response to the direct impact of COVID-19 and for those areas of society whose need has been exposed by COVID-19.

Restructuring and other opportunities

For years, many have agreed on the need for greater collaboration in the sector and since March this appears to have become a fully-fledged reality for many organisations. From charities with similar objects working together, for example sharing back office functions, to charities of mixed sizes and causes forming coalitions perhaps for economies of scale in purchasing, for establishing relationships with the private sector, or for mobilising Government support, the opportunities are almost limitless.

As the chief exec of Alzheimer’s Society, Kate Lee wrote in a Third Sector article recently, “the last month has seen more evolution than in the entire time [she’s] been in the sector. One positive aspect to emerge in the years pre-pandemic and acutely throughout the crisis, is a growing desire to work together”.

“If people need to expand and there is no money, to find capacity and resources we must look to consolidate structures and share services with other charities.”

If any charity is still unincorporated the advice must be to consider incorporation. The advent of the CIO in the last 7 years has made incorporation a much more favourable option for charitable Unincorporated Associations and Trusts.

It is also clear to us that charities will need to work more with other charities in one or more of the following ways:

  • Contractual collaboration – A formal binding agreement between two or more charities to work together (usually to share costs or to deliver a grant funded project);
  •  
  • Formal merger – two or more separate charities come together to form one organisation or where one or more charities transfers its assets to another with similar purposes.
  •  
  • Coalition – separate organisations working together to achieve specified shared objective. Each organisation maintains its own identity and independence. Coalitions and collaborations may be temporary or established on a more formal basis to establish a new working arrangement.
  •  
  • Group structure – a formal association of separate organisations with a parent and subsidiaries. Group structures enable charities to fulfil common purposes over a wide area or deliver a complex range of related service to their beneficiaries.
  •  
  • Affiliation or federation – where a large national umbrella charity exercises some degree of control over local independent charities who are members or affiliates of the umbrella body. The national group offers resources or expertise to its members and may have other powers.

Increasing importance of Volunteers

As well as pure financial practicalities, the increased use of volunteers must be a major factor in recovery of the sector taking advantage of the fantastic community response to the needs of their neighbours. This is a resource that the sector cannot afford to waste.

“The motivation in the sector to do good has never been higher, but the ability and capacity has never been lower” (Rita Chadha, chief executive of the Small Charities Coalition).

“The level of volunteering triggered by the pandemic has been astonishing, charities now have the opportunity to harness this dramatically. Apps created by tech companies like GoodSam have allowed thousands of people to sign up for volunteering quickly and easily. This rush to volunteer has also highlighted the severe lack of investment in volunteering structure” (Paul Reddish, chief executive, Volunteering Matters).

If the sector wants to maintain the momentum it has built up during the pandemic it must make it easy for people to continue volunteering and ensure the needs of volunteers are met.

Coming to the end of the Road

For some charities, most probably those already in financial difficulties, the effects of COVID-19 will sadly prove fatal. The remaining task for the trustees will be to oversee an orderly closure. These trustees must:

  • Check the charity’s governing document for dissolution requirements and restrictions on the distribution of remaining assets
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  • Decide how the charity should be wound up depending on whether it is still solvent or not.
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  • Consider the costs of closing down including:
    • Final contract and leasing costs;
    • Redundancy payments;
    • Costs of selling or transferring any remaining assets;
    • Costs for services such as accountants and lawyers.
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  • Let users and beneficiaries know in good time and if possible, point to support that will help them adapt to the loss of the charity’s services and protect them from harm. It is also important to communicate the decision to funders, volunteers, staff, supporters, creditors and stakeholders
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  • Take professional advice to ensure legal requirements are met.
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  • Submit a serious incident report to the Charity Commission if the charity goes into insolvency or faces closure because of financial difficulties.

As with all times of change, the current crisis will see individuals rise to the challenge and go to extra-ordinary lengths to ensure good works continue and needs of others are met. Collectively the sector must ensure that opportunities for improvement are seized and participants help each other. It has never been more important for the sector as a whole to remember that ‘charity begins at home’. You can do this by sharing knowledge, expertise and experiences as well as considering the advice in this article.

This article was originally published in New Law Journal

RELATED:   CHARITY & NOT-FOR-PROFIT


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