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The first task is you need to find out if your charity is legally insolvent.
There are two definitions of insolvency. If you fail either one or both, you are by law an insolvent charity.
You may also be in the position of solvent now but making losses with the knowledge that you will become insolvent. This can be common for a charity that loses a major income stream. If the answer is yes to any of these, then you should call an urgent Trustees meeting to discuss the charity’s options.
The Trustees have a duty to comply with the charity’s objectives, but they also have a duty to the creditors of the charity.
Trustees should arrange to meet and discuss:
Whatever is decided the Trustees should keep a written record of the meeting and reasons why they are carrying on if that is the conclusion. Trustees can be liable for the charity debts if they have acted wrongly and allowed the financial position to get worse. You may need these records or minutes at a later date to defend yourself if you are taken to Court as a Trustee for allowing wrongful trading.
You need to get some independent professional advice. We can help you and have dealt with a wide range of charities. We can give you that advice at a first meeting or by telephone or Zoom.
If the conclusion is you are insolvent, and it is getting worse our likely recommendation is that you should stop trading and put the charity into liquidation. Liquidation will bring the charity to an end and allow employees to make claims from the Government Redundancy Payments Service.
If the conclusion is you should carry on, then you can do so knowing you have a defence if someone later accuses you or the other trustees of acting improperly.
Please do contact me if you have any questions? We deal with charities based anywhere in England and Wales.
Simply fill out the short form below and I will get back to you.
Licensed Insolvency Practitioner