Andrew Studd
Charity and Social Business Team
Russell-Cooke LLP
12 July 2013

Context
 Current environment
 Trustee duties and setting the strategy to achieve the objectives
 Spectrum of collaborative working arrangements

Drivers
 Wider geographic spread / scale / reach
 Better / more efficient service delivery
 Reduce overheads / loss of income / cost savings
 Future funding uncertainty

Brand and cost of fundraising
 Louder “voice” in campaigning
 Move from grants to contracts
 Funders requiring partnership working
 Governance
 Staff retention / skills
 Crisis?

Business Themes
 Who is your partner?
 Common objectives / goals
 What do they want from you?
 Trust, culture and personalities
 Reputation
 Funding
 Communications and planning
 Contracts

Authority
 Memorandum and articles/trust deed/rules*
 Objects
 Powers
 Trading or fundraising? Primary purpose
 Appropriate use of resources
 Private benefit
 Trustees
 Commercial partnerships policy
 Reputation management
 Charity Commission guidance
*note own structure and impact on liability

 Degree of integration
 Sharing/apportioning of risk
 MOU? Legally binding or not?
 Accountable Body and Sub Contractor
 Primary responsibility remains
 Apportion service responsibility
 Risk of default by subcontractor?

Collaboration: Joint Venture SPV
Charity A
Member or
Shareholder with right to appoint to board
Charity B
Member or
Shareholder with right to appoint to board
Charity C
Member or
Shareholder with right to appoint to board

New Entity
 “Corporate” joint venture or “SPV”
 Limited liability for members or shareholders
 Governance issues
 Business rates
 Costs sharing, VAT and grouping – cost sharing exemption
 Capital provision
 Board appointment and other controls

Key Legal Issues
 Assumption and management of risk – structures and contracts
 Identifiable benefits, outputs or cost reduction
 Management and decision making - process
 Communication
 Due diligence
 Viability of partner
 Employees and TUPE
 VAT/Tax/Accounting
 Legal and Financial
 Culture?
 Control
 Exit

Merger – Structures
 Overlapping board membership
 strategic partnership but
 potential conflicts of interest
 Group structure
 Parent /subsidiary
 Full merger
 One into another
 New organisation
 Other options – function swap

Structures - Group
 Key Benefits
 Isolation of risk
 Benefit of simplicity
 Governance
 Issues
 Benefits of integration
 Confused reporting lines
 “independent” trustee board
 Unincorporated charities

Merge into new charity
Charity A Charity B

One merges into another
Charity A
(+ B)

Structures – Full Merger
 Benefits
 Full integration?
 Branding
 Competitive environment
 Issues
 More extensive due diligence
 Cost
 Legal issues
 Pensions
 TUPE
 Leases

Combination
 Group structure followed by full merger or “hive up”
 Control
 Timing
 Flexibility
 “Independent” trustee board and managing conflicts of interest

Due Diligence
 Asset risks
 Consents? Landlords and other third parties
 Income risks
 Contracts
 Consent of funders
 New funders
 Old funders – clawback
 Past risks

Reputational risks
 Data protection
 Regulatory risks

Due Diligence – Staff Issues
 TUPE
 Varying the employment contract
 Compromise agreements
 Pensions
 Union recognition and national terms
 Self-employed, casuals and volunteers

Transfer Agreement
 Transfer of Assets
 Warranties
 Indemnities
 Intellectual property
 Land
 Assignment/Novation of contracts

Risk Management
 Deal breakers
 Due diligence is key
 Confidentiality agreement
 Heads of terms/MOU
 Role of structure
 Acts as a firewall
 Role of the transfer agreement
 Transfer of assets
 Warranties
 Indemnities

Post Merger
 Just the beginning….
 Integration and implementation
 Mission protection
 Retention, wind-up or strike off
 Register of mergers
 Insurance and claims
 Ring fencing and restricted funds

Checklist
 The starting point: inspiration, not desperation!
 Be clear about the risks, and benefits you are seeking
 Working in the spirit of partnership is key
 Effective leadership is essential
 People are the most important consideration
 Process management is complex and time consuming
 Independent facilitation can be highly costeffective

Contact Details
Andrew Studd
Partner – Charity and Social Business Team
020 8394 6414 andrew.studd@russell-cooke.co.uk