Charities facing insolvency given 'breathing space' by new legislation

Charities experiencing cash flow problems have been given more breathing space after a new statutory instrument was agreed in the House of Lords.

Members of the government's second chamber were discussing amendments to the Corporate Insolvency and Governance Act 2020 last week.

SIs are a form of legislation which allows for new provisions to be subsequently brought into force or altered without parliament having to pass a new act.

During a debate in the Lords, Baroness Barran, the charities minister, outlined how the technical modifications applied to charitable incorporated organisations.

She said the new amendment to insolvency law would allow corporate bodies, including CIOs, to continue trading while exploring options for rescue and restructure to avoid insolvency; and to provide them with temporary flexibility to hold their annual general meetings online or postpone them. 

The new SI disapplies provisions of the moratorium procedure that were not applicable to CIOs, and aims to avoid unnecessary complexity for those relying on them.

In addition, this provision means that a CIO cannot apply to the Charity Commission for solvent voluntary dissolution during a moratorium period where it is protected from creditor action. 

This voluntary dissolution procedure allows a solvent CIO to apply to the commission for it to be wound up, subject to its remaining assets - after settling all liabilities - being passed to another charity with the same or similar purposes. 

During the debate, the non-affiliated peer Lord Bhatia said: “Charities often have a short-term cash-flow problem; these regulations provide breathing space for them.

“In difficult times, such as the Covid pandemic, many charities ?that owe rent or the repayment of loans given to community organisations find themselves in difficulty and unable to pay their creditors.”

Bhatia said the regulations would stop creditors attempting to take legal action against charities with defined new funds or grants. 

Alexander Wood, a partner in the restructuring and insolvency team at the law firm BDB Pitmans, told Third Sector the simplified regulations should be welcomed given the straitened circumstances faced by the voluntary sector.

“These amendments do that, regularising the provisions of the Corporate Insolvency and Governance Act both to fall in line with how other corporate entities are dealt with and to disapply certain provisions that are not relevant to how CIOs operate or are set up," said Wood. 

“It will be easier for CIOs, and those running them, to seek the advice they need to keep them going or, if necessary, wind up efficiently.”

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