Charity Trading/Financial query
Charity Trading/Financial query
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abph

Original Poster:

25 posts

60 months

Tuesday 12th July 2022
quotequote all
I have a query with regards a trading charity. They have struggled to turn a profit for the last 4 years. Cash reserves are almost non existent. Their last published accounts (End Aug 21) show the following:

P&L (£16k)
Assets (Cash and bank balances) (£33k)
Liabilities (Creditors, unused restricted funding) - £53k

Given a negative balance sheet of £20k, at what point do they become insolvent. Given they are continuing to trade, are they trading illegally?

StevieBee

14,282 posts

271 months

Tuesday 12th July 2022
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Not something that can easily be answered on the info you've provided.

If the 'trading charity' is the commercial arm of a 'fundraising charity' then you'd need to look at the obligation of liability that exists between them and also the purpose of the trading arm for the main charity.

Are you sure it's a charity? - As in, does it have a reg' charity number? Or is it a not-for-profit / social enterprise type thing? If it is a charity it would be highly unusual for it to be permitted to operate as such if they have demonstrated insolvency for the past four years.


skwdenyer

18,407 posts

256 months

Tuesday 12th July 2022
quotequote all
StevieBee said:
Not something that can easily be answered on the info you've provided.

If the 'trading charity' is the commercial arm of a 'fundraising charity' then you'd need to look at the obligation of liability that exists between them and also the purpose of the trading arm for the main charity.

Are you sure it's a charity? - As in, does it have a reg' charity number? Or is it a not-for-profit / social enterprise type thing? If it is a charity it would be highly unusual for it to be permitted to operate as such if they have demonstrated insolvency for the past four years.
Charities may legally trade if the trading is a part of their charitable objects. A private school, for instance, or a soup kitchen charging £1 a meal are both examples of charities engaged in charitable trading.

In terms of insolvency, net liabilities aren't necessarily a problem. They might have a long term loan, for instance, that's under no repayment pressure.

If you're concerned, by all means contact the Charity Commission via their website.

s2kjock

1,799 posts

163 months

Saturday 16th July 2022
quotequote all
abph said:
I have a query with regards a trading charity. They have struggled to turn a profit for the last 4 years. Cash reserves are almost non existent. Their last published accounts (End Aug 21) show the following:

P&L (£16k)
Assets (Cash and bank balances) (£33k)
Liabilities (Creditors, unused restricted funding) - £53k

Given a negative balance sheet of £20k, at what point do they become insolvent. Given they are continuing to trade, are they trading illegally?
As per above a lot more info is needed to understand what is in the accounts. Link would be helpful if on Charity Commission website and in public domain.

The trustees could continue to operate the charity if "technically" insolvent on the basis that they have funding expected to come in to allow them to meet commitments, and as above also the liabilities may be long term which would would also allow short terms commitments to be met.

If they are supported by a group/parent or related organisation that could also explain how they are able to continue to operate and the trustees provided with assurance on financial sustainability.