Winding Up and Dissolving an Organisation

1 Jul 2013 Denise Copeland    Last updated: 30 Oct 2018

This article gives you advice on how to wind up or dissolve an organisation.

Introduction

If a committee/board is facing the prospect of having to dissolve its organisation there are certain things that need to be considered in the winding up process. Care must be taken to ensure that all legal obligations and liabilities have been properly dealt with. Winding up an organisation takes time, good planning and specialist advice will help ensure that it is done properly.

Depending on the legal structure and current financial situation, different steps will have to be followed to comply with both statutory regulations and requirements from various regulators.

Please note that this advice note is intended as basic guidance only, it is neither an exhaustive list nor is it a definitive guide to the law. Where relevant, links to more detailed guidance have been included and should be read to fully understand all that is required with the winding up procedure.

Comply with governing document

Consulting your governing document is the first step. Regardless of whether the organisation is incorporated as a company or established as an unincorporated association or trust, the governing document (memorandum and articles of association, constitution or trust deed) will usually contain a clause stating how the decision to dissolve the organisation is to be reached and how the assets are to be disposed of.

Depending on what it states in your governing document, the decision to wind up the organisation will be made by either the committee/board or the members.

If it’s the latter, an extraordinary/special general meeting will have to be called of all the voting members to agree to wind up the organisation.

The governing document will also include information about the notice period required for holding the extraordinary/special general meeting which must be given to all of the voting members.

Financial situation

An assessment of the financial situation of the organisation may be the main contributing factor in deciding to wind up the operations.

Perhaps a core funding stream is going to cease, or already has, and the organisation has not been able to access other sources of finance to keep it going. Regardless of the reason, you should contact your accountant and inform him/her of your intention to wind up and ask for advice.

It is important to carry out a complete review of your finances to fully understand the real financial situation. In determining this you should consider the following questions:

  • Does your organisation owe money (creditors), or is money owed to your organisation (debtors)?
  • Does your organisation have any permanent endowments?
  • Has your organisation received any donations given for a specific cause or donations with restriction on the use of the money?
  • If your organisation has collected membership fees, do these need to be returned?

It is relatively straightforward to wind up an organisation that is solvent and doesn’t have any permanent endowment, however winding up an insolvent organisation may be a complicated process. If your organisation is insolvent, it is always advisable to seek professional advice from an insolvency practitioner to help limit the risk of personal liability.

The Charity Commission for England and Wales has a useful piece of guidance on determining insolvency -  Managing a charity’s finances: planning, managing difficulties and insolvency. If the organisation is a company then the directors should also read Companies House guidance on dissolution and strike off.

Claw back

You will need to check all current contracts, letters of offer, service level agreements to make sure that no money will have to be paid back for failure to complete any outstanding work.

If the organisation has received any capital grants in the past then it also needs to check if there is a ‘claw back’ period for the grant, for example, if your organisation received £5,000 for office equipment two years ago the funder may have an entitlement to the return of some of that money. The following is an example of such a clause from a Letter of Offer:

“Disposal of Assets – not dispose of any asset without the prior authorisation of the funder. If any asset obtained with the benefit of the grant is disposed of within 4 years from the date of acceptance of this letter, the organisation shall, on demand, repay to the funder so much of the grant as the funder considers is reasonable.”

If the funder does not want the money back it may have special rules on the sale of any capital, for example, that employees or trustees would not be eligible to purchase these items.

Assets and property

The governing document of a charitable organisation will usually stipulate that any remaining assets, after the satisfaction of any debts and liabilities, shall be given or transferred to such other charitable institutions having objects similar to that of the organisation. If it is not possible to identify such other charity with similar objects then a cy-près scheme may be needed from the Charity Commission and professional advice should be sought.

If the organisation owns property or equipment, can it be transferred to a similar charitable organisation or does it need to be sold to pay off creditors? If the latter is relevant then you need to be sure that there are no restrictions, from either a funder or a donor, on the sale or transfer of assets.

In addition, you would need to factor in how long it could take to sell the assets. If the organisation does not own property but is renting, what does the lease agreement say about notice period and penalties that may be incurred?

You also need to consider what is going to happen to databases and the intellectual property of the organisation, can it be transferred to another charitable organisation for continued use? Do you want to transfer any domain names to another organisation?

Employees

If you have employees you need to ensure that you comply with all employment legislation. If you are transferring a specific piece of work to another organisation then TUPE might apply. Specialist advice should be taken from a human resources professional to help you adhere to the regulations. Please also see NICVA’s advice note on redundancy for detailed guidance on the rules involved with this procedure.

Pensions

For any organisation which is a member of a multi-employer occupational pension scheme, such as the Pensions Trust, you will have to take professional advice as your organisation could be liable to pay any deficit owing to the pension scheme.

Please see the Pensions Regulator’s specialist guidance on Multi Employer Schemes and Employer Departures for detailed information.

Notice of winding up

If a company is intending to wind up then it must include a statement that it is being wound up on every invoice, order for goods, business letter or order form whether on hard copy, electronically or any other form, and on all of its websites. It would also be good practice for an unincorporated association to do the same.

All organisations being wound up should notify HMRC, utility companies, insurance companies, stakeholders, service users and any regulatory bodies. Please note that cancelling these contracts can take time and you will need to have the correct information at hand, for example, passwords.

Service users / beneficiaries

If the charity has been providing services, then it would help the service users if the charity were to signpost them to another organisation that could help them. It would also be good practice for the charity to speak to other organisations delivering similar services, to advise them that there may be an increase in demand for their services.

Accounts

Cancel all direct debits and close the organisation’s bank account once all money has been spent or transferred. If all the assets of a company have not been transferred before the company is dissolved, these assets will become the property of the State.

Draw up final accounts showing a nil balance and also showing how the remaining assets were distributed.

Winding up a solvent company

If a company is solvent, it may apply to the Registrar in Companies House to be struck off the register and dissolved through the voluntary striking off procedure, subject to certain rules. For example, a company is only eligible to apply for voluntary striking off if it has not changed its name or carried on any business in the previous three months. The only activities which the company is permitted to have been engaged is the winding up of the company and complying with any statutory requirements.

The ‘striking off application by a company’ Form DS01 must be completed by all, or the majority, of the directors and sent to Companies House with a fee of £10.

After this application is made, the directors are then obliged to send a copy of the application to the company members, creditors, employees, trustees of any employee pension fund and any directors who have not signed the form.

The Registrar will include this information on the public record at Companies House, and publish a notice of the proposed striking off in the Gazette (the official newspaper record). This public notice should allow interested parties the opportunity to object to the striking off.

If the Registrar does not receive any objections, or has no reason to delay, the company will be struck off the register not less than three months after the date of the notice. The Registrar will place a notice in the Gazette to say that the company is dissolved. A company can be restored to the register within six years.

Nofitifying the Charity Commission

A registered charity is required to complete a closures notification form to let the Charity Commission know that it is closing.  The notification form requests the following information:

  •  contact details for the individual submitting the notification
  •  details for the registered charity (name, NI charity number, HMRC number and company number if applicable)
  •  date of the closure
  •  reason for closure
  •  details of any assets transferred as a result of the closure
  •  details of any assets still to be transferred
  •  trustee declaration.

Winding up an insolvent company

If the company is insolvent then it will have to go through insolvency proceedings before being dissolved. An authorised insolvency practitioner or other professional will need to be appointed to manage the company’s undertakings.

You should refer to Companies House guidance on liquidation and insolvency (NI) for detailed information about the different types of procedures including compulsory winding-up, receivers, voluntary winding up and administration orders, and the rules which you must adhere to.

Retention of records

Various regulations require that an organisation maintain certain records for a number of years. For example, charity legislation requires that accounting records are preserved for at least six years and company law requires business documents to kept for seven years.  Personnel records must be kept for six years after employment has ceased and records of health hazards for 40 years or longer to satisfy insurance requirements. In addition, funders usually require that all records and information relating to the implementation of a funded project are retained for a specified period. In practical terms, you need to plan where these records are going to be stored and if there is a cost implication involved.

Further Resources

Human Resources, NICVA
Relevant resource: Redundancy Guidance
t: 028 9087 7777
e: [email protected]

Companies House - www.companieshouse.gov.uk

Relevant Resources:

Charity Commission for England and Wales
Relevant Resource: Managing a charity’s finances: planning, managing difficulties and insolvency

The Pensions Regulator
Relevant Resource: Multi Employer Schemes and Employer departures
www.thepensionsregulator.gov.uk/index.aspx

The Law Society of Northern Ireland
Relevant Resource: List of Solicitors practising in Bankruptcy and Insolvency
w: www.lawsoc-ni.org

Sector Matters
Specialist facilitation in winding up an organisation
www.sectormatters.com

Charity Commission for Northern Ireland
Relevant resources:

 

 

Every effort is made to ensure that the contents of this document are accurate, but the advice given should not be relied on as a definitive legal statement.
denise.copeland@nicva.org's picture
by Denise Copeland

Governance and Charity Advice Manager

[email protected]

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