Solvent winding-up: what to consider and what to do

Deciding to close a charity is a significant step, and ensuring the process is handled responsibly and in line with Charity Commission guidance is essential. For charities in the UK, a solvent winding up (closing a charity that can meet all its liabilities) may be appropriate under specific circumstances. Here’s a guide to help trustees consider when and how to take this step.

When might solvent winding up be appropriate?

Trustees might consider solvent winding up if the charity:

  1. Has fulfilled its purpose: The charity’s objectives have been met, and there’s no further need for its existence.
  2. Lacks viability: It is no longer practical or effective to continue operations due to declining demand, funding, or resources.
  3. Can transfer work to another organisation: The charity’s mission can be better served by transferring assets and activities to another charitable body.
  4. Trustees cannot continue: There is no practical way to recruit new trustees or sustain governance effectively.

Key considerations for Trustees

Before deciding to wind up a solvent charity, trustees must carefully evaluate several factors. We recommend that the trustees should take advice from an insolvency practitioner (even if solvent) or legal adviser when embarking on this route. Here are some the factors that should be considered:

Charity’s governing document

Check the governing document for:

  • Provisions related to closure or winding up.
  • How assets must be distributed, typically to another charity with similar objectives.

Financial position

Conduct a thorough financial review to confirm solvency, including:

  • Ensure all liabilities can be settled.
  • Identify remaining assets and their value.
  • Confirm that funds will be used in line with the charity’s objectives.

Stakeholder communication

Engage with key stakeholders, such as:

  • Funders and donors.
  • Beneficiaries and service users.
  • Staff and volunteers.

Compliance with charity law

Adhere to legal requirements:

  • Inform the Charity Commission and submit the necessary documentation.
  • Notify HMRC and other relevant regulatory bodies.

Alternative options

Consider whether other options might be more appropriate, such as:

  • Merging with another charity.
  • Restructuring or scaling down operations.

Steps in the solvent winding up process

If trustees decide solvent winding up is the best course of action, the following six steps should be taken:

  1. Board Decision: hold a trustee meeting to formally agree on winding up. Record the decision and rationale in meeting minutes.
  1. Settle Liabilities: pay off all debts and obligations. Ensure that you resolve any outstanding contractual commitments.
  1. Distribute Assets: ensure remaining funds and assets are applied for charitable purposes. Transfer assets to another charity if specified in the governing document.
  1. Notify the Charity Commission: submit a request to remove the charity from the register, provide final accounts and a closure statement.
  1. Close Bank Accounts: ensure all accounts are closed once transactions are complete.
  1. Final Reports: inform funders, stakeholders, and beneficiaries about the closure.

Ensure you avoid common pitfalls

Failing to plan ahead can result in rushed decisions, which may lead to oversight or non-compliance. Equally, unresolved liabilities must be addressed by ensuring that all debts are cleared to avoid potential future issues. Finally, the misuse of assets should be avoided by verifying that funds and assets are utilised in line with charitable purposes.

How can we help

A solvent winding up is a serious decision that requires careful consideration and planning. By following Charity Commission guidance and conducting a thorough assessment, trustees can ensure the process is managed responsibly, maintaining the charity’s legacy and public trust.

This is intended as a general guide, and you should seek advice if you wish to consider winding up a charity. For more information, please get in touch with a member of our Not for Profit team on 01903 234094.