Charities shape our communities, but how do we support them in times of crisis? Rescuing Relate, the national counselling charity, was one of my proudest achievements of 2024. Working alongside Phil Reynolds, we secured the sale of the charity, to Family Action, thereby saving 185 jobs and ensuring continuity of the amazing work that they do. Through this experience, it’s become more evident that Trustees need more support than ever before. 

Trustees play a vital role, giving up a lot of their free time to offer services and business acumen to promote various charities in the public interest. When I meet with them, I often hear a common story, they initially take a smaller role at a charity so they can give back. However, due to clashes of personality or mismanagement, fellow trustees may fall out or resign and before they know it, they are being asked to take on a more prominent role. Once the dust has settled and on closer scrutiny, they suddenly find themselves holding the reins of a charity, facing the prospect of insolvency and needing to submit a Serious Incident Report to the Charity Commission.

As well as the National Living Wage increasing with effect from 1 April 2025, the overall rate of Employers’ NI will increase from 13.8% to 15% while the earnings threshold will reduce from £9,100 to £5,000. It has been a challenging time for the charity sector with Trustees facing the fallout of the pandemic and the cost of living crisis. Trustees are now being asked to absorb these additional costs at a time when donations, grants and other income streams are being squeezed. There is also uncertainty over the potential ripple effect on UK charities following Keir Starmer’s decision to cut the Official Development Assistance (ODA) budget and Donald Trump’s current freeze on USAID.

Now more than ever, it is important that Trustees enter the charity sector with their eyes wide open and seek professional advice early enough to ensure there is sufficient time and resources to implement a successful turnaround where applicable. Trustees can easily fall into the following traps:

Unincorporated charities – The majority of charities we deal with are incorporated and limited by guarantee. However, we have come across a few unincorporated charities where the Trustees are personally liable for the debts which can obviously have a devastating impact on their personal lives should the charity need to close.

Reserves policy – It is imperative that Trustees have an appropriate buffer to allow sufficient time and resources to be able to implement a restructure or orderly solvent wind down of a charity. Financial discipline is essential, as there is always a temptation to whittle down reserves in the hope of just one last fundraiser.

Restricted funds – Restricted funds are donations allocated to a charity for a specific purpose. These funds are in essence held on trust and the Trustees need to ensure that proper controls and systems are in place to guarantee those funds are properly accounted for. If non-restricted funds are diminished, the options open to a charity in financial difficulty will be limited. If restricted funds have not been used for the specific purpose and without consent, this can have serious consequences for Trustees. 

Contingent liabilities – Trustees may look at the charity’s balance sheet and believe there are sufficient assets to allow for a solvent wind up of the charity. However, on closure there are a number of contingent liabilities that are crystallised. The primary examples being redundancy, notice pay and property related claims. 

Zone of Insolvency - The Trustees’ duties change on entry into the “zone of insolvency” i.e. from acting in the best interests of the charity to acting in the best interests of its creditors. The BTI vs Sequana judgement covers the triggers in more detail but if Trustees breach their duties they can risk disqualification, personal liability and possible imprisonment. At the very least an insolvency will become public record and for those Trustees who work in professional services, public office or regulated services, this may put their main source of employment at risk. However, one source of comfort for Trustees was the Kids Company judgement which showed that the court will look at Charity Trustees more benevolently than their commercial counterparts. 

My colleague Phil Reynolds, who is qualified to act as an interim manager and has extensive experience in the charity sector, is a strong advocate for more mergers and collaboration in this sector. However, there is often inertia to this due to instability at board level and a potential clash of egos or ethos. 

At a time when their time and skills are needed more than ever, Trustees shouldn’t be discouraged from entering the charity sector. They just need to make sure they have access to the relevant support and professional advice at the right time. 

A number of sectors will be particularly impacted by the proposed increase in National Living Wage and Employer NI and whether it is charities, care homes or pharmacies, our teams are keen to share our knowledge and experience so we are able to support those affected during this very challenging time.