Section 44 of the Charities Act 2006 inserted new sections 75C – 75F into the Charities Act 1993, and came into force in November 2007. It is this section that deals with charity mergers.
Two types of charity merger are defined in the Act:
Under the legislation the Charity Commission has established a register of mergers. The Act also includes new provisions to ensure that, where a legacy has been given to a charity after it has merged and ceased to exist, that gift will be treated as if it had been made to the post-merger charity. There appears to be a potential risk if a donor by Will dies between the transfer of the last asset (required before a merger can be registered) and actual registration. A trust charity will cease to exist when it has no property.
The legislation also makes it possible for mergers that completed before the new Act came into force to be entered in the register. This enables charity trustees to wind up any old, "shell" charities they have kept simply to receive legacies and donations.
- Where only part of a charity merges with another charity.
- Where one charity becomes a subsidiary of another charity.
- Where a Will specifically names an alternative charity as the recipient of a legacy, if the first-named charity has ceased to exist.
In these circumstances the gift will either fail completely or will involve the charities concerned in what may well turn out to be time consuming and expensive litigation.
In May 2009, the Charity Commission met with the Attorney General to discuss the problem of transferring legacies when charities merge and we await the outcome of that meeting. Until tighter rules are introduced, many are advising merging charities to continue to retain shells of their old organisations to ensure legacies are protected.
This article was written by Jane Whitfield, on behalf of the Wills and Equity Committee, Charity Law Working Party, Law Society, London.
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