OG 60 Register of charity mergers: sections 305-314 of the Charities Act 2011

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Policy Statement/Overview

IMPORTANT NOTE

  • This is an interim conversion – all the information from the original format OG has been copied over into this new format.
  • The guidance has not undergone an extensive review at this stage; it will be reviewed and renumbered at a later date.
  • The Casework Guidance tab contains all the text from the original style OG; you may find it easier to navigate using the OG Contents tab. The other tabs remain empty until the OG is fully converted.

Summary of the guidance

The guidance in A1 explains:

  • the technical background to the provisions concerned with the Register of Mergers
  • what a 'relevant merger' is
  • when it is compulsory for trustees to notify us of a merger, which is where a vesting declaration has been made

The guidance in B1 sets out;

  • how the Register of Mergers should be maintained and updated (usually by designated staff in:
    • First Contact
    • other functions as needed from time to time)
  • what information is required by law
  • what else we have decided we wish to display on the Register
  • how trustees can notify us of this information

Casework Guidance

Please read the IMPORTANT NOTE on the front page

OG 60 A1

OG 60 A1 Technical background - 14 March 2012 

1. What is the purpose of the charity merger provisions?

The provisions are designed to address two issues:

  • uncertainty over whether a legacy to a charity which has transferred all of its property to another and ceased to exist can pass to the transferee charity (see section 10).
  • simplifying the legal formalities regarding transfer of property between the charities involved in a merger (see section 7).

 

The provisions concerning the Register of Mergers and provide that after a relevant merger is registered a gift to a transferor charity takes effect as a gift to its transferee charity.

 

The provisions permit the transfer of all the property of a charity to a charity with which it is merging by means of a vesting declaration. Where a vesting declaration is used in a merger, the merger has to be registered.

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2. What is a "relevant merger"?

A relevant charity merger is defined in section 306(1) as:

  • a merger of two or more charities in connection with which one of them (“the transferee”) has transferred to it all the property of the other or others, each of which (a “transferor”) ceases to exist, or is to cease to exist, on or after the transfer of its property to the transferee; or
  • a merger of two or more charities (“transferors”) in connection with which both or all of them cease to exist, or are to cease to exist, on or after the transfer of all of their property to a new charity (“the transferee”).

 

In simple terms this covers:

  • a charity dissolving and passing its assets to another;
  • incorporation cases, i.e. where an unincorporated charity winds up and passes its assets to a newly formed charitable company; or
  • cases where two or more charities dissolve and pass their assets to a new charity.

 

A feature of a relevant merger is that the transferor charity/ies ceases to exist after its property has been transferred to the transferee. A charity that dissolves and passes its funds to two or more charities is not a relevant merger within the meaning of the 2011 Act and cannot be registered.

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3. Will a merger involving a charitable body established in Scotland or Northern Ireland (or anywhere else outside England and Wales) which is not within the jurisdiction of the High Court of England and Wales be classed as a relevant merger?

 

No. If one of the charities involved in any relevant merger (as described in 1 above) is a charitable body established in Scotland or Northern Ireland (or anywhere else outside England and Wales) which is not within the jurisdiction of the High Court of England and Wales, the merger will not fall within section 306 of the 2011 Act. This means that it cannot be entered on the Register.

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4. What happens when a transferor charity is permanently endowed?

Section 306(2)-(3) sets out how the definition of a relevant charity merger applies to a charity that has permanent endowment as well as unrestricted funds. As long as such a charity has no power to dissolve, it may transfer its unrestricted funds to another charity and this transfer will still fall within the definition of a relevant charity merger even though the transferor charity has not ceased to exist.

 

In such a case, the charity trustees of the transferor charity may wish to transfer the trusteeship of the permanently endowed fund to new trustees – possibly the charity trustees of the transferee or the transferee itself where it is a corporate body. This will depend on the terms of the governing document and the Commission will be able to offer advice on how this can be done.

 

If a charity has permanent endowment and unrestricted funds and does have a power to dissolve, then presumably the power would provide for the disposal of the property of the charity (including the permanent endowment) and all of the charity’s funds could be passed to another charity as a relevant charity merger.

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5. What mergers do we need to register?

Under section 305(2) we are only required to record relevant mergers that are notified to us by the transferee at any time after the transfer of property has taken place or, where there is more than one transfer, the last of the transfers of property has taken place. The merger that is notified to us can have taken place at any time before sections 305-314 came into force.

 

However, relevant charity mergers where a vesting declaration (see section 6 below) has been made under section 310 must be notified to us under s.305(2) by the transferee charity because of the requirement in s.307(2).

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6. Vesting declarations

Sections 306-308 of the Charities Act 2011 make reference to the vesting declaration. Section 310 sets out what they do and the circumstances in which they can be used. This type of vesting declaration is a deed which vests the title to the property of the transferor charity in (i.e. transfers it to) the trustees of another charity (“the transferee”) as part of a relevant charity merger. For the purposes of s.310, the transferee can either be a charitable company or other type of charitable body corporate, or the charity trustees of an unincorporated transferee charity.

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7. What do pre-merger vesting declarations do?

The deed is made by the trustees of the transferor charity and lists the details of all the property to be transferred (see section 8 below).

 

The date the deed is made is required to appear on the register of mergers by s.307(4)(b). The deed will specify the actual date (“the specified date”) on which the title to all the property listed will be transferred. The specified date is also required to appear on the register by s.307(4)(c).

 

This should enable charities to save costs as separate vesting deeds will not have to be executed for each piece of property transferred.

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8. What type of property cannot be transferred in this way?

There are some types of property that a charity might hold which cannot be transferred by means of the pre-merger vesting declaration. S.310(3)- (4) specifies the following:

  • any land held by the transferor as security for money subject to the trusts of the transferor (other than land held on trust for securing debentures or debenture stock);
  • any land held by the transferor under a lease or agreement which contains any covenant (however described) against assignment of the transferor’s interest without the consent of some other person unless that consent has been obtained before the specified date; or
  • any shares, stock, annuity or other property which is only transferable in books kept by a company or other body, or in a manner directed by or under any enactment.

 

Under section 312(1)(b), if a merger involves a transferor charity with permanent endowment, the vesting declaration will only apply to the unrestricted part of the property.

 

There are also limits to the extent to which a vesting declaration vesting the title to property in the charity trustees of the transferee charity takes effect in relation to registered land within the meaning of the Land Registration Act 2002. The types of disposals affected are those disposals of registered estate or registered charges which are required to be completed by registration with the Land Registry.

 

Examples include:

  • transfers of land registered with the Land Registry;
  • creation of charges over land registered with the Land Registry; and
  • transfers of such charges.

 

Charity trustees will need to take professional advice about this.

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9. Does a charity need to take professional advice?

Yes. The charity trustees of a transferor charity considering whether a vesting declaration will be an appropriate way to transfer the title to its property will usually need to take legal advice. Whether or not the transfer of property or vesting of title will need to be registered with any appropriate authorities should also be considered.

 

In some cases, the terms under which a gift or legacy is left might affect whether the legacy will be payable to the transferee even if the merger is entered on the Register of Mergers. Charities that may receive significant legacy income and are considering merging with another charity, are advised to take advice before deciding whether to transfer all their property to a transferee and to cease to exist. If a transferor charity is not going to wind up upon (or subsequent to) merger, then it cannot be entered on the Register.

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10. Protecting gifts

In any case where a merger is registered with us, any gift to the transferor taking effect on or after the date of registration, will take effect as a gift to the transferee. It should be noted that the key date here is the date that we actually enter the merger details on the Register. This provision is set out in section 311 of the 2011 Act.

 

This provision may avoid the need for transferor charity or charities to be kept in existence artificially (“shell charities”) in order to prevent the possible loss of gifts made to the transferor charity after a merger has taken place because it had ceased to exist.  Merging might provide an opportunity to dissolve a shell charity but, as stated in 9 above, any transferor charity that may be in receipt of significant legacies might wish to take professional advice before winding up the shell. A gift by way of addition to an existing permanent endowment cannot fail on this basis (Re Faraker [1912] 2 Ch 488) because the permanent endowment will not have ceased to exist upon merger. The charity merger provisions make provision for this.

 

A merger can be registered with us however long ago it took place. However section 311 only applies to gifts taking effect on or after the date of registration of the merger. The existing law takes its course in relation to earlier gifts to the transferor.

 

Concerns have been raised about gifts which take effect after the transfer of the property but before the registration of the merger. An unincorporated charity will cease to exist upon the transfer of all its property. To avoid any difficulties arising, it will be necessary for us to be informed of a date for registration of the merger on the basis of a conditional notification under section 305(2). The trustees of the transferor charity will then transfer the property on that date, the condition precedent to the notification is thereby fulfilled, and we register the merger on the same date.

 

11. Public inspection

The Register is required to be open to public inspection at all reasonable times. Section 309 states that where the information is not available in documentary (hard copy) form, it should be available in a legible form.

 

If the Register is viewable on-screen and can be printed off, this should satisfy the requirements of the section.

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OG 60 B1

OG 60 B1 How the register is maintained and updated - 14 March 2012 

1. How do charities inform us of a relevant charity merger and what information do they need to provide?  

The charity trustees of the transferee charity (the recipient) may wish to inform us of a merger voluntarily or may be required to do so by law (because a vesting declaration has been made in connection with the merger). In either case, section 305(2) requires that the trustees notify us and section 307(3) sets out what information should be given in the notification.

 

The notification must:

  • specify the transfer or transfers of property involved in the merger and the date on which it or they took place. This means that a description of the property transferred should be given with the date that the transfer of all the property (except for any permanent endowment) to the recipient charity was completed;
  • include a statement that appropriate arrangements have been made with respect to the discharge of any liabilities of the transferor charity/charities; and
  • in the case of a notification required because a pre-merger vesting declaration has been made in connection with a merger (section 307(2)), set out:
    • the fact that the vesting declaration in question has been made;
    • the date when it was made; and
    • the date on which the vesting of title under the declaration took place by virtue of section 310(2).

 

The Commission has the power to keep the Register in such manner as it thinks fit and has decided that the Register will contain further additional information in order to provide the public with a useful and searchable register. This means that the notification should also contain the names and registered numbers (if any) of the transferor and transferee charities.

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2. Conditional notifications

If a transferee charity wishes to ensure that there is no gap between a charity ceasing to exist and the date of registration of the merger (see section 10 of OG60 A1), the date of the transfer of property to the transferee and the date the merger is to be registered will need to be the same. There is a box on the form of notification where this date is to be entered. The conditional notification will become an effective notification on the date the property is transferred and will then be registered. If the property is not transferred on that date, the trustees of the transferee charity must notify us immediately.

 

It is for the transferor and transferee charities to arrange what the conditional date will be between them. The date specified must allow the Commission sufficient time to register the merger otherwise we will not be able to guarantee registration to coincide with the transferor charity ceasing to exist. The date set should be not less than two weeks from the date the conditional notification is sent.

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3. Where can the form of notification be found?

The online form can be found on the Commission’s website. Charity trustees should print off the form, complete it and send it to us either by post or e-mail. If a trustee has not got access to the internet, we can send out a hard copy by post.

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4. Processing the notifications

Once the forms of notification have been received in First Contact, they will be passed to the designated members of staff responsible for the updating and maintenance of the Register. These members of staff will be responsible for checking that all the information required has been provided.

 

The assumption should be that the information provided is correct, but the designated officers will need to ensure that all the information necessary to create an entry on the Register has been provided. If the information provided is incomplete, the charity should be informed, the case log updated accordingly, and the form of notification provided.

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5. What information will appear on the Register?

The entry on the Register must:

  • specify the date when the transfer or transfers of property involved in the merger took place;
  • if a vesting declaration was made in connection with the merger, set out the information described in the third bullet point in section 1 above; and
  • contain such other particulars of the merger as the Commission thinks fit.

 

With regard to this last point, the Commission has decided that the Register will also contain:

  • the date the merger was registered, as any gift to the transferor which takes effect on or after the date of registration with us, will take effect as a gift to the transferee; and
  • the names and registered numbers (if any) of the transferor and transferee charities.

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6. How is the Register updated where a vesting declaration has been made?

As stated above, the charity trustees of the transferee charity must let us know in the notification:

  • the fact that the vesting declaration has been made;
  • the date when the declaration was made; and
  • the date on which the vesting of the title under the declaration took place (the specified date).

 

The register of mergers must show these three pieces of information. However, there will only be one additional field on the register –for the date when the declaration was made. Filling in this date will show that a vesting declaration has been made. If no vesting declaration has been made, there will be no entry in this field. Where a vesting declaration is made, it is considered the specified date will be the date the property is transferred. This is already a field for all mergers, whether or not they involve a vesting declaration.

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7. Where should the notification be kept?

After the entry on the Register has been made, the notification form should be placed on the transferee charity’s key document file and a copy of the form should be placed on the transferor charity or charities’ file(s).

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8. General information about the Register

The Register can be accessed through the Commission’s website. There is an introductory page which describes what information is shown on the Register and how it can be searched.

 

As explained above, at present the information shown on the register consists of both what is required by law and what the Commission thinks needs to be shown. What we ask, in addition to what is required by law, is governed by the principles set out in the Commission’s Simplification Plan. In paragraph 7.1 of that document, we state that our aim is to ensure that:

 

“…Our actions will be proportionate, fair and reasonable, taking account of the issue, the risk involved to the charity and its beneficiaries and the capacity of the charity to comply. We will only ask for information that we need.”

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