Responding to the crisis

Despite the Government's offers of help for the economy there aren't yet bespoke offerings for charities generally.

During this difficult time, many charities find themselves both in the front line supporting their own vulnerable stakeholders and uncertain as to how they themselves will continue to function.

This brief note seeks to provide helpful pointers for some of the many issues charities are facing, with links to additional sources of useful information.

1. If you're worried about your income and solvency

Even if assistance packages emerge, they will take time to filter through the system. You still need to keep your charity's solvency under review and consider adjusting your strategy to mitigate risks. In many cases one of the key outgoings are staff salaries – see below for how you might sensitively consider managing this risk.

Consider relationships with your funders, partners, customers and suppliers to assess the risk of you or them being unable to perform and consider if there are interim solutions that might be found. In particular, given the impact the virus is having on both health and financial systems, you should consider if there is a risk that pledged funding might fail to materialise.  Many funders have already announced packages of support so speak to your funders about what they can do to support you. While the detail is unclear it looks likely that HMRC will be flexible on VAT and other tax payments but we suggest you keep an eye on updates from them. 

If you're relying on your reserves, obviously take steps to protect your cash and investments. Many lessons from the financial crisis are relevant now, for example ensuring to the extent possible that cash balances are protected by the Financial Services Compensation Scheme.

2. If you're concerned about appropriate staffing levels

Depending on the work that your charity carries out, you may not have enough work for your staff over the coming months, which can put you in a difficult position. If you know there is likely to be a downturn, there are a number of short-term measures that you might be able to implement in order to avoid losing people, such as recruitment freezes, withdrawing or delaying offers of employment, reducing the use of casual or agency staff, overtime bans, and/or requiring staff to take their holiday entitlement during this quiet time.

Some contracts of employment may contain short-time working or lay-off clauses. Even if there is no such provision in the contract, staff may be willing to voluntarily agree to short-term measures such as a temporary reduction in working hours or temporary absence from work. Last week the Government announced a scheme for furloughed workers (i.e. employees who would otherwise have been laid off during the crisis) whereby HMRC will reimburse 80% of wage costs, up to a cap of £2,500 per month. Some charities may wish to take advantage of this scheme in order to avoid or limit the need for redundancies.

When proposing any changes to terms and conditions of employment, remember to consult with staff and follow your policies in order to avoid breach of contract and/or unfair dismissal claims. Depending on the number of staff involved, it may be necessary to follow a statutory consultation process. Whatever happens, close communication with staff is going to be key over the coming months given the speed with which situations might change.

3. If you can't fulfil your part of a contract or suppliers can't fulfil theirs

Check the contract terms for termination/cancellation or suspension provisions. In these circumstances it seems prudent to discuss issues before directly seeking to avoid obligations, especially if there is no clear basis for terminating. Remember you can be liable in damages for wrongly terminating.

If there's a 'force majeure' clause, this may excuse you from or suspend your obligations but they are sometimes difficult to apply. Note also the other party may also be seeking to rely on the provisions.

You could also be excused from your obligations under the doctrine of 'frustration' if the contract has become impossible to perform, but again this is a limited remedy which can only be applied where the facts support it. 

If you can't terminate or suspend your obligations, you may be able to negotiate a solution with the other party.

4. If you're struggling to pay your rent

Failure to pay rent will usually entitle your landlord to 'forfeit' your lease, but most landlords won't want their properties to be vacant at this time, especially given they may become liable to pay rates (albeit subject to proposed measures for certain rate reliefs).

You should speak to your landlord as soon as possible to try and negotiate temporary measures, which could include switching to monthly/weekly (as opposed to quarterly) payments in order to manage cash flow, a temporary rent-reduction, or a rent holiday/deferral. You can also check your lease for an upcoming break clause, but this may not be ideal if you want to resume occupation once the pandemic is over.

5. If your annual general meeting can't go ahead

If your charity is a membership organisation or an "association", check your governing document to see whether it allows you to postpone or cancel a meeting once formal notice has been served, or what happens if a meeting is required to be held in the next few months. Consider whether you could hold the meeting electronically, by post or by using proxy voting. Ultimately, you may have to ask your members for consent to postpone the meeting, but how will you go about doing that? It's worth considering whether Trustees remain validly appointed as many retire automatically at an AGM.

In reality the most significant issue will probably be the sunk costs of hiring a venue and considering whether you can cancel it and recoup any deposit or other costs incurred.

6. If you have a fundraising event planned

Based on current Government advice, you may well need to cancel the event depending when it is due to take place. If you do cancel, you may have to refund donations which have already been made – you should check the terms on which the donation was made and if necessary speak to donors to ask whether they are happy for their donation to be used for other purposes. If you're returning donations, you may need the consent of the Charity Commission first. Consider whether it's feasible to postpone the event instead. Ensure you have a communications strategy in place.

7. If you aren't sure whether your losses are insured

Check the wording of your insurance policies to see what is covered and what's excluded. It's becoming apparent that many "business interruption" policies don't cover or only have very limited application in the current circumstances. Does the policy cover 'notifiable infectious diseases'? Does it exclude epidemics or quarantines? Do you have to have suffered property damage in order to make a claim? If you're thinking of getting insurance now, check the policy carefully before signing up, and be aware that policies covering coronavirus risks may be expensive.

8. If your board can't attend meetings in person

Check your governing document for any specific provisions about holding virtual meetings and making decisions in writing. Consider whether you could hold an electronic meeting, at which everyone attending is able to hear everyone else and contribute effectively. You can also execute documents electronically as long as the formalities for executing the document are satisfied. It's more important that meetings continue to be held and that trustees continue to exercise oversight, even if electronic meetings may not be technically valid. Decisions taken in good faith are unlikely to be challenged and can be ratified at future meetings.

9. If you need to collect additional information about people's health

Health data has special protection under data protection law, but in these exceptional times the rules aren't intended to stop you from doing what's required to keep people safe. Ensure that you only collect necessary personal data, only use it for the purpose it was collected, and delete it once it's no longer needed. Provided you adhere to these fundamental principles, you're unlikely to find your charity subject to regulatory action.

10. If you're worried about keeping vulnerable beneficiaries safe

Stay up to date with the latest Government guidance and ensure all staff are aware of the steps they need to take to protect vulnerable people.

11. If you need more guidance

The NCVO website is a useful source of practical information for charities. There's also new guidance for charities on the Charity Commission website.