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Is your organisation thinking of ‘merging’?
A recent survey of the not-for-profit sector found not surprisingly that funding continued to be one of the most significant challenges facing not-for-profit organisations. Indeed according to the survey many looked like they would not survive the next six months if their funding was not renewed. The survey commented on the number of not-for-profits that are competing for a limited pool of money. This situation may lead some organisations to realistically consider merging with a similar organisation to increase efficiencies, reduce overheads, and/or continue their funding streams.
If your organisation is thinking about merging, there are a number of issues to consider:
You will probably need to wind up one or both of the organisations that are merging. In that case, you will need to consider your rules as to how your organisation is wound up. Usually, this can be done at a general meeting with a sufficient majority, but it is important to check your trust deed or constitution as these can provide different procedures. The Incorporated Societies Act and Regulations also specifically require societies to have two general meetings, and to appoint a liquidator to wind up the society. It is important for societies to consider the timeframes involved in this. It may be simplest to transfer all your assets to the new entity and apply to the Registrar to dissolve your existing societies and/or charitable trust boards on the basis that they are no longer operating.
It is important to get advice before you pay your assets over to the new organisation. Charities will generally have rules requiring that any surplus assets on winding up are applied either to a similar organisation or to a recognised charitable purpose. If you will be distributing your assets to the new organisation after winding up, you will need to make sure that the organisation is ‘similar’ or has a recognised charitable purpose, as required by your trust deed or rules. However, it may be best to donate all your assets to the new organisation before you wind up, so it is wise to take expert advice about what you should do.
If your organisation has any real property (i.e. land and/or building(s)) in its name, it will need to be transferred over to the name of the new organisation. New mortgage documents will also be required if there is a mortgage on the property(s).
You should carefully check whether there are any loan agreements or other contracts, leases, or registered security interests in your organisation’s name. These will need to either be terminated/discharged or transferred into the new organisation’s name.
Trustees of a trust may still be liable for claims against the trust even after it has been wound up. Therefore, trustees should consider: (a) Requiring an indemnity from the new organisation for any claims that may be made against them; and/or (b) Continuing their indemnity insurance for a reasonable period after the trust has been wound up.
Trustees also need to ensure that they are released from any personal guarantees in favour of the trust’s borrowing.
Also make sure your organisation does not have any parent or subsidiaries that also need to be wound up. If your organisation is an incorporated society it may have a charitable trust established by it. Check what the rules are for trustees of that trust. Do they have to be members of the organisation being wound up? If so this situation needs to be dealt with in advance of the wind-up taking effect.
Once the merger has occurred it is also important to remember to take the final step and ensure that the Companies Office and Charities Services are notified if necessary.