How do you liquidate a registered charity?

What is the process of liquidation for a registered charity?

When a registered charity faces insolvency and needs to undergo liquidation, the specific process varies depending on the charity’s legal structure. 

Various charitable legal structures are present in the UK, including the incorporated model, which resembles a limited company, and unincorporated bodies like sports clubs and societies.

Crucial aspects of these procedures involve the trustees’ personal liability for the charity, prioritising creditor returns, and the possibility of investigation by the insolvency service if there are worries about actions taken by those managing the charity before insolvency.

 

Liquidation and charitable companies limited by guarantee

This structure closely resembles that of a limited company and is registered at Companies House.

 A charity limited by guarantee is overseen by directors, with members aiding its goals and objectives through fundraising and other forms of support.

Any profits generated by the charity are allocated towards its stated purposes, rather than being distributed to members as in the case of a limited company. On liquidation, the liability of directors and members is confined to the initial guarantee provided, typically £10 or less.

The Insolvency Act of 1986 permits the same insolvent liquidation procedures available for a limited company to be used for registered charities, including Creditors’ Voluntary Liquidation (CVL) and compulsory liquidation.

The charity sells its assets, using the proceeds to repay creditors as much as possible. After the process concludes, the charity is delisted from the Companies House register.

 

Charitable Trusts

Charitable Trusts are unincorporated entities. They are managed by appointed trustees, who bear responsibility for the charity’s debts in the event of insolvency. 

Unlike their incorporated counterparts, Charitable Trusts are not considered separate legal entities. Typically, procedures for winding up in insolvency are outlined in their trust deeds.

 

Charitable Incorporated Organisations (CIOs)

These types of charities are incorporated but are not registered with Companies House. Similarly, insolvent liquidation procedures available to the charity mirror those for limited companies, with necessary adjustments made accordingly.

It’s important to highlight that directors of CIOs and companies limited by guarantee may become accountable for their charity’s debts if financial mismanagement or misconduct is discovered by the liquidator.

 

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• What are the alternatives to company liquidation
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• What happens to a director during company liquidation

 

Unincorporated associations

As the name implies, this charity structure is not legally distinct and must rely on a constitution or set of rules to function. 

Formal liquidation procedures outlined in the Insolvency Act of 1986 do not apply to this type of charitable club or society. Members could be personally accountable for their debts.

If you’re a member, trustee, or director of a charity and are concerned about its decline, Vanguard Insolvency can offer valuable professional guidance on the appropriate next steps to consider.

Neglecting to minimise creditor losses can lead to personal liability, even if the charity is incorporated. Therefore, it’s crucial to comprehend your duties and responsibilities in this regard. With over 100 offices across the UK, expert and confidential advice is readily accessible.