Concerns for charity trustees during COVID-19

31 March 2020

Charity_shop

The current COVID-19 crisis presents an attack on all fronts to the third sector. Owing to social distancing measures and restrictions on movement announced by Boris Johnson on 23 March 2020, commonplace fundraising activities and events will be cancelled and charity shops closed, extinguishing income streams. All the while, demand on charitable services is rapidly increasing. The current circumstances may have devastating effects on charitable reserves and indeed the ability of charities to continue to discharge their charitable purposes to beneficiaries.

Amidst this evolving epidemic, charity trustees must contend with discharging a unique range of duties, from statutory duties such as those as comprised within the Charities Act (NI) 2008 and the Companies Act 2006 if incorporated, regulatory duties such as annual reporting, contractual duties and fiduciary duties.

Charity trustees are held accountable by the Charity Commission Northern Ireland (CCNI), the charity regulator in Northern Ireland. It will be a relief to charity trustees to know that in the update recently circulated by CCNI, assurances have been provided that during this time CCNI’s regulation of charities “will be as flexible and supportive as possible”. This will be a welcome update for the third sector in Northern Ireland, especially in light of the more stringent update circulated by the Charity Commission of England and Wales, which was met with rebuke by charity representatives in England and Wales.

Below we have addressed some concerns that charity trustees may face and provided guidance on how these may be managed.

Service Users

Charity trustees must act in the best interests of the charity at all times and are tasked with ensuring delivery of the charity’s charitable purposes for the public benefit. However, the current restrictions on movement will impede a charity’s ability to physically reach beneficiaries whilst adhering to government imposed restrictions.

Further, charity trustees must be cognizant of the risks to beneficiaries, if they intend to provide support to vulnerable groups, such as the elderly or those with conditions such as cancer or chronic respiratory issues.

Charities should take measures to ensure that these vulnerable groups are not unnecessarily exposed to the risk of contracting COVID-19 but can also play a role in raising awareness of prevention measures that beneficiaries should be taken to ensure their own health and safety. Consideration should be made to how charities can continue to deliver services to their beneficiaries, such as via virtual courses, live streaming advice or outdoor workshops.

Contingency Planning

To sufficiently answer the demands placed upon charities owing to the pressures of COVID-19, trustees may have to amend existing plans and cancel future commitments (where possible) to help pool resources. A review of current available resources and pressure points in services will help charity trustees to contingency plan and prioritise accordingly.

Issues to be considered will include current and short term projections of income levels and how the charity can run if a significant portion of staff or volunteers are unavailable. Are there facilities to assist employees to work from home to assist with continuity? Can fundraising efforts be diverted to online platforms? The landscape is changing on a daily basis and as such it may be best to focus on the immediate future.

Meetings and Decision Making

Owing to the restrictions on movement, many trustees will be left with little option but to postpone or cancel key board meetings. In the event that trustees cancel or postpone such meetings, as a matter of good governance the rationale should be noted, that being adherence to government restrictions and further the health and safety of the trustees.

Unfortunately, trustees may be faced with decisions that require urgent attention, making cancellation inappropriate. Should this be the case, trustees should review their governing document to determine whether provisions are included to hold board meetings by electronic means.

Not all governing documents will include provision for charity’s to hold meetings by electronic means. Thankfully, CCNI have noted in their recent update that should charity trustees elect to do so to safeguard the health and safety of the participants, CCNI will accept this as a valid meeting subject to there being a quorum. It is important to have the minutes reflect the decision of the charity trustees in this regard.

In addition, charity trustees may wish amend the governing document at a later date so that they have the power to hold meetings electronically, affording more flexibility in other times of emergency.

Reporting

Trustees will be relieved to note that in the guidance recently circulated by CCNI stated that there will be no penalties issued for not filing the charity’s annual report within their respective deadline nor will it be marked as in default on the charity register, until further notice.

If trustees anticipate that they will not meet the charity’s filing deadline, where possible they should update the Charity Commission by emailing [email protected].

Accounts

Incorporated Charities may have concerns in respect of missing account filing dates if they have been unable to approve the accounts at a board meeting or disruption with contacting their accountants.

However, as of 25 March 2020 the Companies House Contact Centre has been temporarily closed until further notice. In addition, companies can now apply for a 3-month extension on filing. Any company that applies for an extension as a result of COVID-19 will automatically be granted such extension without needing to provide any further evidence. This will help charity trustees focus their attention on other pressing matters.

Government guidance on how to apply for this extension can be located here:

https://www.gov.uk/guidance/apply-for-more-time-to-file-your-companys-accounts

Finances

Charities of all sizes may face an imminent cash flow crisis due to restrictions on fundraising activities and trading income owing to the current restrictions on movement and social distancing measures.

In the immediate, charity trustees should seek to improve cash flow upon assessment of their fixed. To assist with cash flow, charities should invoice or interim invoice for those service already delivered and chase all outstanding debts.

Many banks have indicated that they are willing to offer customer’s 0% overdraft facilities for a limited time or loan repayment breaks. As such, reach out to your bank to discern what terms they are willing to offer to reduce outgoings in the short term.

Where possible, delays should be made to any commitments on expenditure whilst available resources are recalibrated. If the charity has available reserves, trustees should consider how to best apply reserves in line with the charity’s reserves policy.

Recently more than 100 MPs supported a letter that requested the Chancellor of the Exchequer to address the specific funding crisis faced by charities. At this time, charity trustees can simply apply pressure to this call by contacting their local MP, pressing the case for urgent assistance. In addition, continue to review the updates issued by the Chancellor of the Exchequer to see if their organisation will qualify for any offered assistance.

The stark reality facing some charity trustees if the organisation is not able to pay its debts as they fall due is that they may need to consider taking advice on solvency.

Further advice on the statutory duties of charity trustees of incorporated charities also acting as company directors can be read here:

https://www.carson-mcdowell.com/news-and-events/covid-19-the-changing-nature-of-directors-duties-at-the-onset-of-insolvency-and-the-uk-government-response

Contracts

Should trustees have concerns about breaching existing contracts owing to the disruption caused by COVID-19, a review of the specific contract terms shall help identify any contact terms upon which they can seek to rely. Please see the article "Contractual Considerations Following COVID-19" for further information in relation to this issue:

https://www.carson-mcdowell.com/news-and-events/contractual-considerations-following-covid-19

In many cases, the first step may be to reach out to the contracting party. Counterparties are more likely to take a sympathetic approach when negotiating a pause of obligations when dealing with a charity, than compared to other commercial entities.

If trustees have a particular concern that they will fall in breach of their funding agreements, the first step should be to reach out to the relevant funders. Explain the disruption to ongoing project activities part of funding agreements. If there are certain reporting requirements to ensure staged draw down, where possible ensure compliance. It may provide charity trustees with some comfort to note that the Association of Charitable Funders have encouraged funders to contact their grantees to discuss how they can best support them at this time.

Employees and Volunteers

As an employer, charities can contact HMRC for a grant to cover most of the wages of their workforce who remain on payroll but are temporarily not working during the coronavirus outbreak. The organisations status as a charity will not affect their eligibility for the scheme.

Prior to the government’s movement restrictions, many charities made the decision to suspend part of their services in recognition that many volunteers upon which they so heavily rely include elderly or others who are vulnerable to contracting COVID-19. Early closures included all charity shops associated with the British Heart Foundation, Oxfam, Cancer Research UK, and Save the Children.

At this time, charity trustees must consider what steps are necessary to protect and support their employees, which will in turn reduce the risk of spreading COVID-19. This may take the form of:

  • Considering whether it is now necessary to close their office to ensure compliance with restrictions on movement;
  • Providing necessary hardware and software to facilitate working from home;
  • Circulating the government’s advice in respect of social distancing and hand-washing;
  • Appoint a member of the senior management team to help identify essential operational processes required for the continued running of the charity on a day to day basis and address how these can be met remotely; and
  • Direct that members of the senior management team circulate advice to employees on how to work effectively at home, as this dynamic may require some adjustment.

Charity trustees may find the following articles helpful which address queries of employers arising on foot of COVID-19 and the job retention scheme:

https://www.carson-mcdowell.com/news-and-events/covid-19-your-employment-law-faqs

https://www.carson-mcdowell.com/news-and-events/coronavirus-job-retention-scheme

Serious Incident Reporting

Charity trustees have a duty to report all serious incidents to CCNI and provide information on how these are to be managed. Undoubtedly, COVID-19 will qualify as a serious incident for all charities. Thankfully, CCNI have acknowledged the challenges COVID-19 presents for the sector and have stated that should trustees decide that they need to temporarily close their charity, they do not have to issue a serious incident report to CCNI. This will help alleviate the additional pressures of completing such reports, when resources are already at a minimum. Charity trustees should note that their obligation to continue to report other serious incidents will remain.

Available Insurance

Charity trustees may have been forced to close trading arms or cancel events owing to COVID-19, giving rise to losses.

It may be worthwhile to review the terms of your insurance coverage to determine whether any coverage is available due to such disruption. The terms of the policy wording will require careful review to assess whether broader coverage is available for interruption caused as a result of a pandemic like COVID-19. There may be conditions within the policy, requiring the insured to mitigate loss and report to the insurance provider within a certain time limit.

Early indications have shown that any claim for loss under insurance policies will be met by considerable challenge by insurance providers. Albeit, this is to be expected owing to the value of the claim if it is determined that such risk has been underwritten, so there is merit in reviewing insurance terms in any event.

CCNI & Pending Registrations

Please note that the CCNI office is now closed and should charity trustees have any queries, these should be directed by email to [email protected].

Should your charity still be subject to registration, the CCNI have advised that these will proceed as normal. However, there may be delays in receiving correspondence or a final decision.

In the event that trustees have concerns in respect of meeting submission deadlines, they should seek an extension as soon as possible by directing their correspondence to [email protected].

If you have any queries please contact the Charity Law team at Carson McDowell.

*This note reflects the position as at 31 March 2020.

*This information is for guidance purposes only and does not constitute, nor should be regarded, as a substitute for taking legal advice that is tailored to your circumstances.

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