OPERATIONAL GUIDANCE
REGISTER OF CHARITY MERGERS: SECTIONS 75C, D, E AND F OF THE CHARITIES ACT 1993 (AS ADDED BY THE CHARITIES ACT 2006)
TECHNICAL BACKGROUND
OG 60 A1 – 21 April 2008
| Purpose |
This guidance explains the technical background to the provisions of the Charities Act 2006 concerned with the Register of Mergers. It explains what a "relevant merger" is and when it is compulsory for trustees to notify us of a merger, which is where a vesting declaration has been made. |
Contents
1. What is the purpose of the charity merger provisions?
2. What is a "relevant merger"?
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?
4. What happens when a transferor charity is permanently endowed?
5. What mergers do we need to register?
6. Vesting declarations
7. What do pre-merger vesting declarations do?
8. What type of property cannot be transferred in this way?
9. Does a charity need to take professional advice?
10. Protecting gifts
11. Public inspection
Glossary of Terms used in this Guidance
Index to further related information
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| The Law |
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1. What is the purpose of the charity merger provisions? |
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The provisions are designed to address two issues: |
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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). |
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simplifying the legal formalities regarding transfer of property between the charities involved in a merger (see section 7). |
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The provisions bring into being a 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. |
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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"? |
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A relevant charity merger is defined in section 75C(4) as: |
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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 |
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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"). |
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In simple terms this covers: |
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a charity dissolving and passing its assets to another; |
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incorporation cases, i.e. where an unincorporated charity winds up and passes its assets to a newly formed charitable company; or |
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cases where two or more charities dissolve and pass their assets to a new charity. |
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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 1993 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? |
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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 75C of the 1993 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? |
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Section 75C(5) 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. |
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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. |
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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? |
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Under section 75C(3) 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 75C, D, E and F came into force. |
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However, relevant charity mergers where a vesting declaration (see section 6 below) has been made under section 75E must be notified to us under s75C(3) by the transferee charity. |
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6. Vesting declarations |
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Sections 75C, D, and E of the Charities Act 1993 make reference to the vesting declaration. Section 75E 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.75E, 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? |
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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). |
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The date the deed is made is required to appear on the register of mergers by s.75C(9)(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.75C(9)(c). |
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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? |
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There are some types of property that a charity might hold which cannot be transferred by means of the pre-merger vesting declaration. S 75(E) (3) and (4) specifies the following: |
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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); |
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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 |
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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. |
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Under section 75E(6)(b), if a merger involves a transferor charity with permanent endowment, the vesting declaration will only apply to the unrestricted part of the property. |
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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. |
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Examples include: |
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transfers of land registered with the Land Registry; |
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creation of charges over land registered with the Land Registry; and |
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transfers of such charges. |
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Charity trustees will need to take professional advice about this. |
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9. Does a charity need to take professional advice? |
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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. |
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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 |
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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 75F of the 1993 Act. |
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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. |
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A merger can be registered with us however long ago it took place. However section 75F 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. |
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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 75C(3). 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. |
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11. Public inspection |
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The Register is required to be open to public inspection at all reasonable times. Section 75D states that where the information is not available in documentary (hard copy) form, it should be available in a legible form. |
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If the Register is viewable on-screen and can be printed off, this should satisfy the requirements of the section. |
Index to further related information