Winding up your charity

Last month, the Shane Warne Foundation announced it will cease operations amid controversy regarding its distribution of funds. The ACNC provides a checklist of what directors need to do when facing the closure of their charity.

The Shane Warne Foundation last week announced it will cease operations amid controversy regarding its distribution of funds and a subsequent audit ordered by Consumer Affairs Victoria. This follows the charity’s failure to provide “sufficient” information about its financial affairs to the regulator. 

However, the Shane Warne Foundation is not alone and is, in fact, among more than 10,000 charities that have been removed from the Charity Register since the establishment of the Australian Charities and Not-for-profits Commission (ACNC) three years ago. 

The reasons for this are varied, but more often than not they are closed due to a lack of activity, or because they have failed to submit their Annual Information Statements for two years. Other times, charities just run their course. 

 “We know that about eight per cent of boards have discussed winding up in the past 12 months,” says Phil Butler, NFP Sector Leader at the AICD, citing the latest research findings reported in the 2015 NFP Governance and Performance Study.

“There should be nothing wrong with a charity winding up,” adds Butler. “If they’ve achieved their mission or can no longer achieve their mission effectively – it could be the perfect time to wind up.”

Regardless of the reasons, boards and their directors have responsibilities to ensure that the charity is wound up legally, that all liabilities have been considered, and assets have been distributed before cancelling registration as a charity with the ACNC.

Consult your organisation’s governing documents

“If a charity decides to wind up, the board must make sure that it is following the charity’s governing documents and all other legal requirements,” says the ACNC.

Consult your organisation’s rules, constitution and articles of association as well as the rules of your charity’s regulator e.g. incorporated regulators, ASIC or the ATO. These will be critical in determining various processes and the manner in which you make decisions, such as the distribution of assets.

Dot your ‘i’s and cross your ‘t’s

Winding up a charity will involve a number of activities. The ACNC lists the following as the most likely to occur:

• agreeing to wind up as a board
• appointing an independent administrator or liquidator if required
• ending contracts
• paying debts
• distributing surplus assets (leftover money and property)
• closing bank accounts
• disbanding the governing body (board, committee)
• cancelling registration as a legal structure (this will depend on the type of structure the charity is)
• cancelling registration as a charity with the ACNC
• cancelling the ABN

Consider employees, volunteers, the community and the public

“A board may need to get professional advice when deciding whether to wind up the charity or to assist with winding up, especially if it has employees, valuable property or contracts. This professional advice may also help a board consider other options such as merging,” the Commission says. 

The charity will need to be prepared to communicate with a wide range of stakeholders on the issue. This includes telling members, volunteers, employees, clients, donors, the local community in which the charity operates, as well as the wider public.

For further information on engagement with NFP stakeholders, see Principle 10 of the AICD’s Good Governance Principles and Guidance for NFP Organisations.