Charity Commission filings
The Charity Commission has issued a welcome statement that its approach to regulation will be as flexible and pragmatic as possible in the public interest during the coronavirus outbreak. The Commission has asked charities to aim to file charity accounts and reports on time, however if a charity has an imminent filing deadline that cannot be met, they can contact the Commission to arrange an extension.
The Commission has not indicated what it considers to be imminent, and so if a charity has concerns about filing its upcoming account and annual return, we would recommend contacting the Commission.
The Charities SORP Committee has published guidance on the implications of coronavirus on charity financial reporting. The advice does not amend the SORP, but aims to assist those preparing financial accounts at this time. The advice says trustees should consider whether an explanation of the impact of Covid-19 on the organisation should be included.
Companies House filings
Companies House has released Coronavirus guidance which is being updated regularly. If it becomes apparent that your charity will not be able to file accounts on time, an application can be made to extend the deadline online here. Applications should only take fifteen minutes to complete. Companies House have confirmed that extensions will be granted automatically and immediately for three months for customers who are applying due to coronavirus. However, applications must be made before the filing deadline has passed. Without an application to extend, the automatic penalty will still be applied for late filing.
The London and Edinburgh offices are now closed, and all physical documents should be delivered to Companies House Cardiff. The contact centre has now also closed to protect staff welfare, and so all enquiries should be made to email@example.com or your customer care manager. All same day services have been suspended.
Reporting serious incidents
Many charities now face serious challenges as a result of the wide reaching impact of coronavirus, both in terms of how they operate and their financial position. Shortage of staff and extreme limits placed on operations are being coupled in some cases with increased demand for services. Trustees should consider whether any of the challenges that arise out of the current situation are sufficiently serious to be reported to the Charity Commission, and keep this question under review as time goes on.
The Charity Commission has said:
"It is ultimately the responsibility of the charity trustees to continue to report serious incidents using our current guidelines, and we will continue to ask trustees to use their judgement in deciding whether an incident is significant in the context of their charity and should be reported to us."
Trustees should consider whether a serious incident report is required using the same considerations and thresholds as always, i.e. is the incident serious in the context of your charity? The question is not whether the incident is serious in the context of the coronavirus outbreak generally. Some charities will not have reported a serious incident before, and we would encourage them to refer to the Charity Commission guidance available here to determine whether a report is required.
If trustees come to the decision that a report is required, best practice is to aim to make it promptly. The report should detail how the impact of coronavirus contributed to the serious incident. Equally, if the trustees take the decision that a serious incident report is not required, the reasons for not doing so should be recorded.
Maintaining good governance
In light of the most recent Government instruction to stay at home, face to face meetings are not viable. What is not clear is how long these circumstances will last. Even when the most stringent restrictions on society are lifted, organisations will still need to protect those who are vulnerable and so social distancing in some form or other is likely to continue for a considerable period of time. Charities should develop a plan for how they will continue to make decisions necessary for effective operation in the medium term, while also maintaining good governance practice during this period. We have set out some guidance below.
Making decisions - trustees
Trustees will undoubtedly be making important, and perhaps difficult, decisions in the coming months. They should keep in mind that they are not expected to make perfect decisions, but should always act reasonably and take reasonable steps to ensure they have the necessary information to make a decision.
Ideally, a meeting would be to discuss a decision and consider the implications together as a board. Check for notice requirements in the governing document, however if a specific period is not given, reasonable notice will be required. What is reasonable will depend on the circumstances and a quorum will be required throughout the meeting as usual. Many organisations have adapted for some time by instigating voice or video call meeting participation and have specific provisions in their governing documents to deal with this.
Even if remote meeting arrangements are not permitted explicitly in your governing document, the Charity Commission has helpfully noted that this may be the only way to proceed in the circumstances – regardless of the constitutional position. It is still of course important that all decisions are properly recorded regardless of meeting format and to make sure that a note of the meeting is circulated as soon as possible to ensure the actions are agreed.
In emergency situations where Trustees have to move quickly and the circumstances do not allow for a full meeting to be convened with notice, there are a number of ways to ensure decisions are still made properly:
- get the unanimous consent of all the trustees, for example in the form of an email from each of the trustees confirming they agree with the decision taken
- written resolutions can be used, subject to the provisions in the charity's governing document. This is another means of confirming the unanimous informed consent of the trustees
- as a last resort, if it is very important that a decision is taken but in the circumstances it cannot be done validly, the best course of action may be to take the decision anyway and ratify it when it is next possible to hold a board meeting.
Meeting minutes should be taken carefully so that decision making processes are recorded properly. If something is to be ratified at a later stage, the reasons for this approach should also be documented as a matter of good governance.
As ever, and particularly if decisions need to be made in haste, trustees should be mindful of their duties regarding conflicts of interest and private benefit. Given the heightened feelings of stress and pressure in the current environment it is feasible that these issues will not always be at the forefront of people's minds, but it is important to keep sight of these fundamental principles of charity governance.
Making decisions – AGMs
Many charities are due to hold their AGMs in the coming months, many of which would normally have taken place in person. AGMs could be held electronically, as long as it is possible for all members to participate, speak and vote. This may not be difficult for a charity with a small membership, however, this is challenging for those with large memberships.
Another option would be to consider circulating a resolutions document to members by post to a) approve any substantive business that would be dealt with by the AGM and b) amend articles and/or authorise the exceptional postponement of the AGM. That too may be difficult with offices closed and the ability to print and address postal communications challenged.
The alternative is to postpone or cancel. Whilst postponing may mean that annual reports and accounts cannot be finalised, as noted earlier the Charity Commission has said that charities with 'imminent' filing dates can contact them to discuss an extension.
Many charities are also obliged by company law to ensure they hold an AGM within a specified period – our advice is that the risk of any regulatory action for technical statutory breaches is very low risk. If it is necessary to postpone an AGM, the reasoning should be recorded properly as a matter of good governance.
Are your governing documents fit for purpose?
Now may be a good time for some charities to review their governing documents and consider whether there are any changes to administrative provisions that could be made to allow the charity to operate more smoothly and in a more agile way.
For example, if Trustee decisions made by written resolution currently need to be unanimous, charities could consider relaxing this to require a simple majority or even 75% agreement, so that decision-making does not need to grind to a halt if one trustee becomes unavailable for a period.
Check schemes of delegation and controls, and whether they are adequate for the new ways of working adopted during this period. With teams now having moved out of the office and working remotely, there is a risk that some parameters and checks could fall away, particularly if formalities start to relax in the interests of keeping things moving. This could place a charity at greater risk of becoming bound by an unacceptable liability unintentionally.
When considering ways to continue working in the current situation, it is still important to ensure that new processes do not expose the assets of the charity to a greater risk of fraud. Checks and balances should always be in place with regard to the use of charitable funds. Finally, given the likelihood that people will require absence from work and other duties either due to illness or caring responsibilities, charities which are currently operating with the minimum number of trustees required for a quorum could consider seeking to relax these requirements so that if someone is absent or needs to step down at short notice, decision- making will not be delayed or prevented.
Freeing-up restricted funds
The Charity Commission's coronavirus guidance recommends that trustees consider the short, medium and long term priorities of their charity, and whether they need to amend their financial planning given the current situation. Reserves can be used and spending on certain non-essential projects can be reconsidered. Funds for such projects may be 'designated' but still remain part of the unrestricted funds of the charity.
Another option to consider is freeing-up restricted funds. The Charity Commission guidance states "If there are restrictions, in some instances there may be ways to amend these restrictions, but accessing or releasing restricted funds should only be considered if other options such as reserves are not possible".
During the course of the current situation, charities may need to consider accessing restricted funds. There are a number of ways that restricted funds can be made available for use.
- Reclassifying funds: It may be the case that a charity holds funds that have historically been incorrectly classified. Charity Commission guidance allows funds that have been restricted to be correctly reclassified as unrestricted if evidence (or a lack of it) supports it. Trustees may test the current classification of funds, seeking to match restricted funds to evidence of restriction at the point of receipt. In the absence of such evidence, the Commission takes a view that funds in question can be properly reclassified as unrestricted.
- Releasing restrictions on funds: If restricted funds cannot be reclassified, there are statutory options in terms of rationalising them in order to make them more useful to a charity's needs. Procedures under the Charities Act 2011 differ depending on the size of the fund to be released, but they are relatively straightforward. In order to release larger funds, the prior permission of the Charity Commission is required and can be sought using an online form.
We have considerable expertise in helping our charity clients lift restrictions on funds and in many cases this can be done relatively quickly without the involvement of the Charity Commission. If you would like to explore what may be possible for your organisation please do get in touch with your usual Withers' contact.
Charities and coronavirus: fundraising and contractual matters
Large fundraising events have now been cancelled or postponed and public, face to face fundraising is also no longer possible. This has led to some creative ideas around fundraising, such as charities hosting virtual versions of events, which has the added benefit of alleviating the feelings of isolation that many are experiencing.
Nonetheless, many charities will be considering how to deal with the funds raised from ticket sales for events which are no longer taking place, or the money raised by a participant in an event that has been called off or postponed.
The approach with regard to ticket sales will be governed by the terms of the contract between the charity and the consumer. In particular, following the Government's announcement that gatherings of more than two people are banned for three weeks from 24 March 2020, force majeure clauses are more likely to have been triggered as it is now impossible, rather than just difficult, to hold events of any size due to coronavirus. Unfortunately there is no single definition in the UK of what constitutes a force majeure event, and so your position will depend on the precise definition in the relevant contract.
Where funds have been raised by a participant in a now cancelled charity fundraising event, this will often have been done via an online platform which transfers donations to charities on a regular basis. It is not clear on what contractual basis repayment of these donations could be requested.
Where there is no contractual obligation for a charity to return funds, charities should bear in mind how limited the circumstances are under which a charity is permitted to return funds. Repayments which are not contractually necessary, cannot be justified as being in the best interests of the charity and for which are not allowed under the governing document would engage the law of ex gratia payments, and would require the permission of the Charity Commission.
If a charity will not be refunding tickets for an event, when communicating the decision it should word the communication sensitively, to aim to limit the negative impact on its relationship with supporters as far as possible. Postponing an event rather than cancelling completely may be possible which should limit the requests for refunds.
The Charity Tax Group has written to the Chancellor and asked that he allows Gift Aid on donations that are a result of charities keeping payments originally made for cancelled events.
Finally, observing the generosity of the public in response to the crisis, the Charity Commission and the Fundraising Regulator have released a joint statement urging people to give safely to registered, regulated charities.
Coronavirus: data protection
Charities gathering information with a view to gaining an understanding of the spread of the virus or its effects, and/or providing support to its victims, may be considering how data protection law will apply to those activities. In particular, concerns may be raised where personal data relating to health, a type of 'special category' personal data, is collected.
While much will depend on the specifics of planned activity, it may still be useful to bear in mind that:
- Current data protection laws have not been put in place to prevent the processing of personal data, but to ensure that it is done fairly and without adversely affecting the rights of each individual whose personal data is being processed. Asking basic questions such as 'do we need to collect this data?' and 'can we ensure it will be protected with appropriate safeguards?' can help ensure that a proportionate approach is taken.
- Personal data, and special categories of personal data, can be lawfully processed where it is necessary to protect the vital interests of individuals. Charities providing support or other services to victims of COVID-19 may be in a position to rely on this legal basis for processing personal data.
- The ICO has published a page entitled 'Data protection and coronavirus: what you need to know' on its website, in which it recognises that the resources of organisations may be diverted away from usual compliance or information governance work during the pandemic. Further, it goes on to say that the ICO 'won’t penalise organisations that [it] know[s] need to prioritise other areas or adapt their usual approach during this extraordinary period'.
The ICO noted in a statement of 12 March 2020 that it is a 'reasonable and pragmatic regulator, one that does not operate in isolation from matters of serious public concern', which is reassuring for organisations working to make a difference in this very fast moving and challenging situation.