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Monday, 5 March 2012

Charities in funding crisis

A leaked report at the weekend has suggested that charities are going to see a large cut in funding.  Although this has already been happening the scale of the cuts proposed has taken some by surprise.  The leaked report was compiled by the Association of Chief Executives of Voluntary Organisations (Acevo)  which helped to run the £100m transition fund set up by the government to help charities facing financial difficulties.

The report suggested that the 1,725 organisations applying to the fund faced losing 45% of their total income as a result of the government cuts.

It found applicants to the fund faced cuts of more than £520m in the current financial year, and estimated that the UK charity sector as a whole faced cuts of between £1bn and £5.5bn.

The government said that this report was not representative of the charity sector as a whole as this is not the only fund that charities can apply for.  In addition they stated that the applicants mostly came from the North East and North West.

So basically if you are a charity based in the North then it is likely that you will be hardest hit.  So what can you do if you face a shortfall in funding?  If the charity does not have any historical debts such as to HMRC then rapid downsizing will be necessary to avoid insolvency.  However, if you already have significant debts and the charity is limited by guarantee then you are able to use the same insolvency rescue tools as a company.  As such a CVA or company voluntary arrangement can be used to help pay off a proportion of your unsecured debts over time.   It is important to note that there are other "company" structures that a charity can take but if they are not limited by guarantee then the partners and members can be held jointly and severally liable for the charity's debts.

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