You are here: Home > News & events > Newsletters > Charity mergers

Charity mergers

12 May 2011

Charity mergers

The mere suggestion of a merger or even collaboration with another charity may, traditionally, have been coolly received by charities passionate about their cause and method of delivery.

Such a suggestion may also have encountered reluctance due to the complex legal process historically required to transfer property on merger. However, a number of economic and statutory factors may be starting to bring about a change in perception.

First, the challenging financial climate and the Government’s Comprehensive Spending Review mean that many charities are experiencing a substantial decrease in donations and investment income together with cuts to their public funding. In these difficult times collaboration or merger with another charity may well be an attractive prospect, and one which enables organisations to continue to meet their beneficiaries needs whilst safeguarding themselves financially.

In addition, the Charity Act 2006 simplified the legal process regarding transfer of property for charities involved in a merger. It also removed uncertainty over legacies to charities which have merged and ceased to exist in their original form.
A combination of these factors means that for many, merger is now a far more realistic prospect than in the past.

Finally, in the current rapidly evolving political landscape of the third sector, some charities may feel that they will have a bigger impact if they combine forces with other, similar organisations. It is suggested that the decision to merge Age Concern and Help the Aged to form Age UK in April 2009 provides one example of this.

Recent notable charity mergers include that of Self Unlimited and Tamarisk Trust, disability support charities; and the Prostrate Cancer Research Foundation with Prostate UK to form Prostate Action. Both mergers took place during November 2010.

Meanwhile, other charities remain in the process of merger, these include mental health charities the Richmond Fellowship with 2Care; and the merger of Bassac and the Development Trusts Association.

Both mergers are due to take place in April 2011.

Of course, few in the charity sector will claim that merger is an easy option: charities who decide to merge will have a number of financial, cultural and legal issues to navigate.
 
One crucial consideration for charities undertaking a merger will be to ensure they comply with their obligations towards their respective employees under the Transfer of Undertakings (Protection of Employment) Regulations 2006 – ‘TUPE’. 

TUPE will apply to a charity merger because – depending on the structure the merging charities choose to adopt – the identity of the employer of at least one, if not both sets of employees will change.

Under TUPE, charities have an obligation to provide information to, and, in some circumstances, consult with, the employees’ elected representatives in relation to a merger before it takes place. It is worth noting that the obligation to inform and consult applies to all effected employees, and not only those whose employer will change as a result of the merger. Thus, in mergers where one charity transfers its assets and staff to another charity and winds up, the employees of both charities have a right to be provided with certain information, and in some circumstances, consulted with.

The information employers are obliged to provide (in writing, if at all possible) will include confirmation of the merger, the date when the merger is proposed to take place and the reasons for it, as well as the legal, social and economic impact of the transfer. Although there is no prescribed time limit as to when this information must be given, it must be provided in enough time before the transfer to allow consultation to take place.

Although this may sound daunting, the reality may not be quite so onerous: the duty to consult (rather than merely to inform) will only be triggered where the charities plan to make one or more changes as a result of the merger which will effect their employees. In addition, one or both merging charities may already have trade union or other suitable employee representatives, thus removing the need to elect new representatives in order to consult with them.

It is certainly worth the investment of time in complying with these obligations, not only because providing clear and sufficient communication is likely to enhance future employee relations, but also because it may well save significant costs in the long run, by minimising the risk of a successful Employment Tribunal claim, the financial penalties of which can be significant.

 

Download Charities Update Spring 2011

‹ Back

Quick contact

Furley Page Solicitors in Kent, London, Canterbury, Chatham & Whitstable
Get in touch on 0845 603 10 57