Legal issues in charity mergers in England and Wales

New research shows that as competition for income becomes increasingly intense many charities are looking to merge or work closely together to safeguard their future. However, the ESRC-funded research also shows that merging may throw up complex legal issues that can threaten the creation of effective new organisations.

Research conducted by the University of Liverpool�s Charity Law Unit analysed the experiences of 13 charity mergers, involving 29 individual charities. The principal aim of the research was to assist charities contemplating merger by setting out in detail the legal problems that are involved and the different strategies that have been employed to deal with them.

Typically, restrictions placed on the use of a charity�s assets can prevent the new organisation using existing funds. Moreover, differing constitutions can create problems for the running of the new organisation. To avoid these difficulties charities that are merging need to consider four main technical areas:

- The form and process of the merger
- Asset preservation and transfer
- Employment issues
- Due diligence, risk assessment and trustee liability

However, the research found that success or failure largely depended on cultural and managerial factors. In particular the researchers found:

- Mergers need to be carefully planned and thought through - where possible, it is wise to do a feasibility study first.

- It is best to adopt a pragmatic approach to legal problems, recognising that there is no set way of dealing with the legal issues that arise during a charity merger.

- The merger process will expose any structural or constitutional weaknesses that a charity may have. All charities should undertake a �legal health-check� of their governing documents before attempting a merger.

- Charities should not be afraid to spend money seeking professional advice in relation to a possible merger. But it is important to be clear about what they are looking for from their advisers, and clear information and instructions should be given.

The Director of the Charity Law Unit, Miss Debra Morris, says: �When charities merge the solutions adopted to the legal problems presented are not necessarily related to the charity�s size, structure or activities. What needs to be borne in mind is the character of the organisations, whether they have worked together before, and the real reasons behind the merger. Charities should be prepared to pay for professional advice. Our research shows that early advice from the right source can actually help to reduce costs,� she says.

For more information, contact Ms Debra Morris, Charity Law Unit, Law
Faculty, University of Liverpool, Liverpool L69 7ZS. Tel. 0151 794 2825.
Email [email protected] Or, Lilian Eldoufani or Lesley Lilley in ESRC External Relations. Tel: 01793 413032 or 413117.

NOTES TO EDITORS

1. As part of the research the Charity Law Unit have produced a guide to good practice for dealing with legal problems of merger. The guide, �Mergers: A Legal Good Practice Guide� which is written by Professor Jean Warburton, can be downloaded free from the Charity Law Unit�s website. The address is http://www.liv.ac.uk/law/units/clu.htm The full research report, �Legal Issues in Charity Mergers� is also available from the Charity Law Unit website.

2. The ESRC is the UK�s largest funding agency for research and postgraduate training relating to social and economic issues. It has a track record of providing high-quality, relevant research to business, the public sector and government. The ESRC invests around �46 million every year in social science research. At any time, its range of funding schemes may be supporting 2,000 researchers within academic institutions and research policy institutes. It also funds postgraduate training within the social sciences, thereby nurturing the researchers of tomorrow. The ESRC website address is http://www.esrc.ac.uk

3. REGARD is the ESRC�s database of research, accessible via the internet. It provides a key source of information on ESRC social science research awards and all associated publications and products. The website can be found at http://www.regard.ac.uk