As any charity trustee will be all too well aware, restricted funds are funds received for a specific purpose, whereas unrestricted funds are those received by the charity and capable of being used for any purpose of the charity that the trustees decide.
Restricted funds should be thought of as a mini charity, which means they are likely to be part of a separate trust.
Upon an insolvency event happening restricted funds may well lose their restricted or trust status. This often comes as a surprise to many charity trustees who think of restricted funds as being sacrosanct. Because of this charity trustees may find it desirable to return the funds to the grant provider or donor before entering into formal insolvency, however this may be a breach of insolvency law and no action should be taken before consulting Lucas Johnson.
Deciding on whether the restricted funds still hold their ‘restricted’ status at the point of entering formal insolvency is often complex and timely, but this is a matter for the Insolvency Practitioner you appoint from Lucas Johnson to conclude. When acting as Liquidator or Administrator of the charity this is a very important aspect to get right.