Charity trustees warned of responsibilities in face of funding cuts
AN insolvency trade body is warning directors of charities and social enterprises of their personal liabilities in running organisations facing the threat of spending cuts.
R3, a trade body representing 97% of the UK’s insolvency practitioners, said that while many of these organisations face either sever restrictions or even a total loss of income from public sector sources, their trustees and directors need to remember their responsibilities and ensure that their operations do not continue to trade while insolvent.
The organisation’s North West chairman, Matt Dunham, said: “The cuts will squeeze the voluntary sector and some organisations will have to make tough choices – such as cutting services, cutting costs or in some cases closing down altogether. No matter how difficult the decisions, if the financial situation is unsustainable, directors need to take urgent action.
“Trading while insolvent is illegal. Directors or trustees who allow the organisation to continue operating when insolvency is inevitable or who don’t make every effort to minimise losses can be convicted of wrongful trading and be held personally liable.
He urged organisations who were unsure about their organisation’s future, perhaps because they have complex revenue streams, to take professional advice and to monitor their cashflow closely.
Meanwhile, the Manchester-based Co-Operative Bank has announced that it has increased lending to charities by 55% and to social enterprises by almost 50% in the year to November 30, bringing the total to £44m. Credit balances to the sector also increased by 56% to £716m.
It added that a specialist team responsible for charities in the north of England saw deposits from charities rise almost threefold to £103m during the period and lifted lending from around £2m to some £17m.
The bank argues that not-for-profit organisations are attracted to it as a result of its own ethical investment policy.
Barbara Hodgson, Head of the bank’s Northern Charity and Social Enterprise team, said: “There are long-standing similarities between the role of Third Sector organisations and the aims and values of The Co-operative in having a positive impact in communities and society.
“At a time when many banks have lost the trust of customers and scaled back their offering, we have increased our support to the Third Sector through a commitment to continue lending and offering investment products to maximise return on cash at a time of unprecedented low interest rates.”
