Managing Collaboration Preparation: A Guide for Charities

1. Managing the preparation for collaboration Presentation by Judith Harrison FCCA Manager Professional Services Voluntary Action Sheffield

2. Starting Off • Chatham House Rules • We are charities • My experience

3. What do VAS does • Professional Services; Payroll, CAS, Legal, HR and EDC • Training • IT, inc VCConnect • Circle Building This allowed us to deliver “joined up support”

4. Collaboration Why? For charities the objects of the charity & hence the Beneficiaries’ interests must come first

5. What format can this take? • Informal collaboration • Consortia • Sharing ownership of a delivery organisation, e.g. a trading arm • Full blown merger

6. Merger optionsWhen “A” and “B” want to merge

7. Option 1 Pros • Avoids cost of forming of new organisation • Retains reputation/good will • Could “re-name” remaining organisation to minimise perception that they have “taken-over” the other organisations.

8. Option 1 Cons • Trustees need to be certain that the particular needs of their beneficiaries can still be met. • The recipient organisation is perceived to “take over” which may not be acceptable to boards of merging organisations • May have to alter articles of mergees to allow transfer of assets • Existing Contracts (held in name of organisations which are “taken-over”) may not allow novation to the new organisation • TUPE will apply • S75 Pension liabilities may arise

9. Option 2 Pros • There is not a recipient organisation , which could be perceived to “take over” this may be more acceptable to boards of merging organisations

10. Option 2 Cons • Trustees need to be certain that the particular needs of their beneficiaries can still be met. • Costs of formation of new organisation • Need to form a new organisation with a new name so loss of reputation/good-will, may have to build new relationship with funders • May have to alter articles of mergees to allow transfer of assets – can approach Charity Commission to allow this to happen • Existing Contracts may not allow novation to the new organisation • TUPE still likely to apply • S75 Pension liabilities may arise

11. Option 3 Pro • Minimal organisational change needed • S75 Pension liabilities will not arise

12. Option3 Cons • May be seen as a “take-over”

13. Preliminary steps • Determine why • Build trust • Commit to the outcome

14. Process Need to consult the Charity Commission’s guidance see; “Making mergers work: helping you succeed” Due Diligence needs to cover; • Legal • Financial • HR • Operational

15. Carried out by? Professional Advisors or trustees/staff • Legal • Financial • HR • Operational

16. Where to start? • We start by doing an initial legal check to ensure; • Objects are compatible • Organisations have • Power to dissolve • Can transfer assets • If not need to have EGM/Apply to charity Commission

17. Other legal issues • Novation of Contracts

18. Financial Due Diligence • Back-wards look • Valuing assets and liabilities of a merger partner at a specific date, but on what basis? • E.g. Should redundancy costs be included • “Concept of “Crystallisation” of assets • Forward look • Liquidity of the charity’s operations going forward

19. Pensions • What is a S75 liability?

20. Timing • A merger process often has to work to an specific merger date • Remember EGM usually require 28 days notice for members • Then the dissolution notice needs to be filed with companies House & this may take up to 14 days.