Managing the preparation for collaboration

Presentation by Judith Harrison FCCAManager Professional Services

Voluntary Action Sheffield

Starting Off

• Chatham House Rules• We are charities• My experience

What do VAS does• Professional Services; Payroll, CAS, Legal,

HR and EDC• Training• IT, inc VCConnect• Circle BuildingThis allowed us to deliver “joined up support”

Collaboration Why?

For charities the objects of the charity & hence the Beneficiaries’ interests must come first

What format can this take?

• Informal collaboration• Consortia• Sharing ownership of a delivery

organisation, e.g. a trading arm• Full blown merger

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

Take over Option 1 Transfer of assets “A” receives assets of “B”

Merger Option 2 Transfer of assets Assets of both “A” & “B” are transferred to a new organisation

Take over Option 3 Transfer of ownership

Organisation “A” becomes sole trustee of “B”

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.

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

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

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

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

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

Preliminary steps

• Determine why• Build trust• Commit to the outcome

ProcessNeed to consult the Charity Commission’s guidance

see; “Making mergers work: helping you succeed”

Due Diligence needs to cover;• Legal• Financial• HR• Operational

Carried out by? Professional Advisors or trustees/staff

• Legal • Financial• HR• Operational

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

Other legal issues

• Novation of Contracts

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

Pensions• What is a S75 liability?

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.