Furlough leave and the Coronavirus Job Retention Scheme
We've received lots of enquiries about the Government's Coronavirus Job Retention Scheme, which entitles employers to a grant covering up to 80% of salary costs for employees placed on furlough leave.
Who qualifies for furlough leave? How do we put employees on furlough leave? How long do employees have to remain on furlough leave? What about employees who are off sick?
We're awaiting further guidance to clarify outstanding issues. In the meantime, we've prepared a summary of the scheme and answers to frequently asked questions here.
Three month ban on evicting commercial tenants for non-payment of rent
Under the new Coronavirus Act, a landlord may not forfeit a lease (i.e. bring it to an end by re-entering the property or applying to court for possession) for non-payment of rent until 30 June 2020. This period is subject to future extension.
However, rent will still be due (albeit that a landlord cannot forfeit the lease for it during this period) unless a landlord agrees a waiver in writing with the tenant. The ban doesn't prevent forfeiture for other reasons (besides non-payment of rent) during this period. Also, it won't apply to arrangements falling short of a tenancy, such as contractual licences to occupy.
If court proceedings for forfeiture for non-payment of rent have started before 26 March, the court must, if it decides to grant possession, grant it for a date after 30 June.
Our property litigation colleagues have published further guidance on coronavirus developments for Landlords and Tenants both commercial and residential which can be found here:
Helping those affected by the pandemic
Many charities have been asking whether they can carry out new activities to help people suffering because of the pandemic. The first step is to look at the wording of your charity's objects. A charity with objects such as the relief of poverty, the relief of need, the advancement of health, or general charitable purposes, may be able to provide support.
Where your charity's objects don't permit you to help people suffering as a result of the pandemic, you won't be able to use your resources to provide support. However, for some charities it may be possible to interpret your objects more widely than you may have thought. The Charity Commission may also be able to help you amend your objects where this is a development of your existing purpose – and the Commission is prioritising any request that's urgent because of the current crisis.
If you seek to assist on virus-related matters where this is at the limit of what your objects currently permit you to do, the Commission may support a more liberal interpretation of your objects, if you can make a reasonable argument that the activities you propose are within your objects. This is a situation where advice could help protect trustees.
There may also be some flexibility in relation to designated funds, which you could redesignate for different purposes and some charities may wish to spend some of their reserves. Restricted funds must be used in accordance with the restriction, but it may be worth checking whether funds are in fact restricted. There's also scope for trustees to pass resolutions to change the purposes of smaller restricted funds, but consent from the Charity Commission is need to changes the purposes of larger funds.
Temporary suspension of the wrongful trading rules
The recent announcement that the wrongful trading provisions in the Insolvency Act are suspended retrospectively for three months from 1 March will help some charities manage during the current crisis. Charity trustees cannot be held personally liable for losses which accrue where they seek to trade through this current period of turmoil. This is especially important for charities working on the frontline delivering vital services who are uncertain about their viability given the lack of fundraising and other income generating activities.
There's also a moratorium on creditors enforcing their rights pending the development of a restructuring plan and permitting the organisation to acquire essential supplies to enable them to continue to trade (currently utilities). It also allows the proposed restructuring plan to bind creditors, although how this works is as yet unclear.
This change doesn't relieve trustees of their other duties under charity and insolvency laws and is not a lifeline to all struggling charities. It just provides an incentive for trustees not to act too hastily. For some charities, interruption to income generation during the lockdown may cause such a significant impact on the charity's finances that closure remains the only option.
Unfortunately this positive development on wrongful trading doesn't cover unincorporated charities, where trustees still face potential personal liability for losses suffered by the charity. We encourage any unincorporated charity carrying out any long term, risky or trading activity to consider incorporating.
A more detailed article on this topic is available here.
Financial support available to the sector
The Government's package of support announced on 17 March is of limited assistance to charities. Whilst the Job Retention Scheme, Statutory Sick Pay extension and HMRC tax deferrals will be available to charities, many charities will not be eligible for any of the loans, grants and business rates holidays:
- the business rates holiday and cash grants for retail, hospitality and leisure businesses will only apply to limited types of charities that fall within the Expanded Retail Discount Scheme. This would include, for example, charity shops, sports clubs and art galleries (your local authority should contact you if you are eligible)
- it currently seems that the Small Business Grant Scheme (possibly unintentionally) will not apply to charities because they receive charitable rate relief rather than small business rate relief or rural rate relief
- charities will not qualify for the Business Interruption Loan Scheme unless they earn more than 50 per cent of their income from trading
- the Corporate Financing Facility is aimed at large corporations and requires the purchase of commercial paper
Lots of pressure has been put on the Government to provide additional support for the sector, and we are expecting an announcement on this.
In the meantime, at least one of our clients has had some success in writing to their funders asking for an increased payment under their contractual arrangements and/or an acceleration of payments. There are also lists of available funding prepared by NCVO, Civil Society and Charity Bank.
Data protection considerations
For many charities, responding to COVID-19 means collecting, using, and sharing personal data in new ways. As with all things data protection, the implications vary from charity to charity depending on their work and the impact the pandemic is having on that work. For some charities, such those providing advice services to people with health conditions, demand has increased massively in recent weeks. For many others, the effect of the Government's measures to reduce the spread of the virus has led to difficult decisions aimed at reducing staff costs.
While data protection law shouldn't stand in the way of charities being able to respond to the crisis, it's important to stop and think about how personal data is being used. We know that personal data breaches are more likely to occur when people are working at home without the usual information security features and policies usually found at work, or under substantial pressure, as Watford Community Housing found out when they accidentally shared personal details about 3,545 residents (including information about ethnicity, religion and sexual orientation) as part of an email update on the coronavirus outbreak.
The ICO and the European Data Protection Board both issued further statements last week on the use of personal data during the pandemic. While the overriding message continues to be one of reassurance that supervisory bodies will take a proportionate approach to data protection regulation and enforcement during these unprecedented times, charities need to stay alert to data protection risks in order to avoid mistakes that could have a significant and lasting negative effect on reputation and public trust.
Impact of the pandemic on charity meetings
Restrictions introduced in relation to the pandemic have raised questions for charities as to whether, and if so how, they can go ahead with meetings, including AGMs and Board meetings. If your charity needs or wants to hold a meeting during the crisis, your first step should be to check for relevant provisions in your governing document, as this may provide you with options, such as virtual meetings or postponement. However, many governing documents don't provide sufficient flexibility to conduct meetings effectively in the current circumstances. The Charity Commission has indicated that, given the situation, it may be permissible to postpone or cancel AGMs, or hold meetings remotely. We've prepared a detailed article setting out options available in respect of meetings whilst the crisis continues, read here.
Should you proceed with your property transaction?
The Government has advised against moving house during this period unless you can do so whilst complying with social distancing guidance. This would be a sensible approach for charities to take in relation to any property transactions too. Not only are the practicalities of physically moving into a property (and of any previous occupier moving out) likely to be challenging, but so are some elements of due diligence, such as obtaining a survey and third party searches. If you're taking on a new lease, you also risk paying several months'worth of rent before you can access the premises.
However, there's no need to pull out of such transactions completely (although of course, changing financial circumstances may make this the only option for some charities). It should be possible to negotiate a delayed completion date, to occur once the current restrictions are lifted. Even where contracts have been exchanged, sellers may be willing to vary the contractual completion date. Where leases have been entered into, a landlord might offer a rent-free period. In many cases, it will be in both parties' interests to ensure that the transaction can go ahead at an appropriate time.
To avoid confusion later down the line, charities should ensure any agreed concessions are documented in writing, particularly where existing contractual commitments are being varied.
The impact of the crisis on your accounts
The situation has created challenging issues for charity accounts. The Charities SORP Committee has published guidance (see here) on the potential impact on financial reporting. It advises charity trustees to consider whether information needs to be included in their charity's accounts to explain the impact of the Covid-19 situation. This may include financial uncertainty and risk for the charity, including whether it remains a "going concern", impacts on beneficiaries, operations and fundraising, changes to reserves policies and implications for defined benefit pension schemes.
It will now be difficult for some charities to finalise and submit their annual accounts on time with the Charity Commission – and Companies House if the charity is a company. The Commission has offered some flexibility. If the current situation impacts on the completion of annual returns and accounts charities with an imminent filing date can email the Commission to request an extension. Charitable companies can apply to Companies House for a three month extension to file accounts, provided the reason for needing an extension relates to the Covid-19 situation and the application is made before the filing deadline (see here for more information).
This note is up to date at the time of writing, but please be aware that circumstances are changing swiftly in these extraordinary times.