One of the most welcomed changes to be implemented by the Charities Act 2006 was the introduction of a Register of Mergers. The purpose of the Register is to ease the process by which legacies left in a Will to a particular charity are transferred if that named charity has merged with one or more other charities before the death of the testator.
Prior to the introduction of the Register of Mergers there was a problem with legacies failing because the charity to which the legacy was made out no longer existed. To deal with this problem, and to safeguard legacy income for a new merged charity, it was common for the shell companies of old charity to be kept in existence following a merger. This approach enabled any legacies that were left to the original charity to be received by the shell company and then transferred to the new merged charity, rather than be lost altogether. However, the retention of the shell company might create extra expense and administrative burdens, such as Companies Act requirements to prepare accounts and an annual return, to hold general meetings and to comply with trading disclosure requirements.
It was hoped that the introduction of the Register of Mergers would remove the need to retain shell companies for the old charities following a merger. The details of a merger can now be entered in the Register of Mergers (which is a public document) and it was intended that gifts to the old charity taking place on or after the date of a merger would take effect as if they were gifts to the new merged charity.
However, despite the early optimism surrounding the introduction of the Register, it is now considered that the drafting of the legislation introducing the Register is not robust enough.
The Charity Commission has become concerned that merged charities might not be able to receive income from legacies made out to their pre-merger names and has recently met with the Attorney General to discuss the problem of transferring legacies.
A particular problem arises where a clause in a Will names an alternative charity as recipient if the first-named charity has ceased to exist. In those circumstances, the provisions in the Charities Act 2006 may not be strong enough to override the provisions in the Will.
Until the problem with the drafting of the Charities Act 2006 has been resolved, we are advising merging charities to continue to retain shells of their old organisations to ensure that legacies are protected.
For a no obligation chat, more information or advice on charity mergers, please contact
Mark Lewis.
This article was first published in NewsBrief, Summer 2009.
