If you are looking to wind down your organisation, it’s winding down could take 3 primary forms:
- Insolvent Liquidation
- Solvent Liquidation
- Dissolution and/or cessation
The formal liquidation of your charity or not for profit organisation under the Insolvency Act will fall under one of 2 principle types – a solvent liquidation or an insolvent liquidation.
In broad terms an insolvent liquidation occurs where an organisation has reached the end of its life or is insolvent and cannot continue without further losses being incurred. A liquidator is appointed to deal with the winding down (or winding up as it is technically known) of the charity and ensuring all relevant legislation is adhered to in dealing with creditors.
A solvent liquidation takes place where an organisation is able to pay all of its debts in full, along with statutory interest and the costs of liquidation. This is often useful where trustees want the comfort that a legal mechanism protects them from claims arising that may disrupt what they have done previously, which may also lead to personal liability claims.
An organisation that sees knows it is solvent but that sees its reserves dwindling with no reasonably foreseeable turnaround in its fortunes should consider long and hard whether closing now is in the best interests of all concerned. This may sound strange, but trustees/committee members/directors should be alive to the possibility that closing now may mean another organisation benefits financially from the surplus available. Continuing to operate and reducing reserves merely to preserve employment (which is a common desire) may not be in the best interests of all concerned and increases the risk of reaching the point of insolvency – e.g. redundancy and notice pay entitlements may rise as each day goes by.
Information on each type of liquidation is covered in more detail in the section on solvent liquidations and insolvent liquidations.
Going through a liquidation exercise may not be desirable, and in some instances it is not possible (e.g. because your organisation is unincorporated). Where this happens you can simply looking at dissolving your organisation or ceasing operations once all its assets are sold and its liabilities are paid.
For this non-formal option to be considered you will need to take into account factors such as:
- Identifying all liabilities – actual, contingent, prospective
- Ensuring recovery action is not taken by any creditor before funds are available to pay them as any formal recovery action will entitle them to claim costs and/or interest for late payment
- Ensuring employment legislation is fully adhered to
- Care will need to be taken to not be in breach of any trust(s) in relation to restricted funds
- Completion of all deregistrations – e.g Companies House, FCA, Charity Commission
Undertaking this task alone can be difficult and time consuming, but not impossible. We can help you with anything from simple tips and pointers to completely taking over the task. For more information and help contact us today.