Is your charity suffering due to Covid-19?
The Corporate Insolvency and Governance Act (CIGA) came into force on 26 June 2020. CIGA is the latest piece of legislation enacted by the government to try and assist businesses suffering as a result of Covid-19. The good news for charities is that many of the protections contained within the CIGA will also apply to them as well.
It is not just businesses that have suffered as a result of Covid-19. Many charities have found their funding and donations significantly reduced as individuals and corporates look to make cost savings. Additionally, in the same way, businesses have not been able to trade, fundraising events and charity shops have had to close or be postponed.
Do the provisions of CIGA apply to your charity?
Firstly, and in order to determine if the provisions of CIGA apply to your charity, it will be necessary to determine what corporate structure your charity operates within. If your charity is either a Company Limited by Guarantee or a Charitable Incorporated Organisation (CIO) the good news is you will benefit from CIGA.
The government acknowledges the difficulty businesses are likely to experience as they begin to trade again, one hurdle that CIGA attempts to remove is certain issues relating to insolvency.
By way of an overview, CIGA provides:
- Legislation to overrule certain common contractual provisions and allowing a party to cancel a supply contract in the event that the customer suffers certain insolvency events;
- Suspension enabling CIO’s and Companies Limited by Guarantee time to consider restructuring options in advance of debt recovery action.
- Temporary suspension of wrongful trading provisions and the use of winding-up petitions. This is for period 1, March 2020 to 30 September 2020, (this period may be extended depending upon the continued effect of Covid-19).
This will provide charities and businesses more time to reorganise their finances and trade out of any financial difficulties that may have appeared as a result of the Covid-19 lockdown.
It will also prevent suppliers from enforcing certain debt proceedings, giving directors the comfort of protection from possible wrongful trading allegations and the personal liability that it may attract. This will hopefully give charities the time and space that they need to recover.
Of course, it should be noted that CIGA may also have a detrimental effect upon certain charities that also have trading subsidiaries. If those trading subsidiaries are providing goods and services to customers that suffer certain insolvency events, the trading subsidiary will likely have to continue to provide those goods or services.
Difficult decisions will have to be made by trustees regarding the protection of the charity's income and preserving its assets against the risk of a customer becoming insolvent and being unable to recover these outstanding debts.
For more information relating to CIGA and the effect on businesses in general click here to read my colleague Tracey Dickens’ blog. To discuss concerns you may have or how this will affect your charity please contract Tim Field of Birkett Long on 01206 217366.