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01 December 2020

20: Charities and COVID-19 – CIGA 2020 update: members’ meetings and relief from wrongful trading liability

While the government considered easing pandemic restrictions over Christmas, it seems that BEIS has been reflecting on further relieving measures for those running businesses and charities in the run-up to Christmas and beyond. On 26 November 2020, regulations came into force to extend further the current temporary relaxation of rules for holding members’ meetings of certain corporate bodies and to introduce a new period of relief from liability for wrongful trading.

Members’ meetings

As reported in our blogs of 6 October 2020 and 1 July 2020,  the Corporate Insolvency and Governance Act 2020 (CIGA 2020) introduced a number of measures to help businesses, including many charities, cope with the fall-out from the pandemic and the restrictions imposed to deal with it.

One of these measures is to help companies and certain other corporate bodies to hold general meetings and AGMs during social distancing restrictions by relaxing, on a temporary basis, the usual rules on how members’ meetings must be held, even if the body’s constitution requires something different.

For charities, these provisions extend to charitable companies, CIOs, SCIOs and mutual societies (such as a Community Benefit Society), as well as the trading subsidiary companies of any charity.

The measures are helpful as they enable such bodies to hold a general meeting (or a meeting of any class of members or of delegates appointed by members) which:

  • need not be held at a particular place;
  • may be held and votes may be cast by electronic or other means; and
  • may be held without a quorum of participants having to be together in one place.

While the provisions apply, members of such bodies continue to have a right to vote by some means, but do not have the right to attend in person, participate other than by voting or to vote by particular means.

Originally, these measures were introduced for a ‘relevant period’ beginning on 26 March 2020 and ending on 30 September 2020. Regulations made in September extended the relevant period to 30 December 2020. The new regulations extend the relevant period for a further three months until 30 March 2021.

The new regulations do not apply to bodies formed under Scottish or Northern Ireland legislation, so do not extend to SCIOs or certain Northern Ireland mutual societies. Any equivalent measures in Scotland and Northern Ireland are matters for the devolved administrations there.

It is helpful that the government has moved early to extend these provisions again, enabling those bodies which can take advantage of them more time to plan ahead in respect of any members’ meetings or AGM which they may need to hold in the next few months.

There is a long-stop date of 5 April 2021 on these provisions, meaning that any extension beyond that date would require further legislation. Given that, despite good news on potential vaccines, it remains unclear when social distancing restrictions will be relaxed sufficiently to allow a return to mass gatherings, it remains the case that it would be prudent for charities which can use these provisions to consider whether they may need any amendments to their constitutions to facilitate the charity’s ongoing operations.

Charities making use of the provisions should also have regard to the Charity Commission’s coronavirus guidance. It notes that charity trustees relying on the provisions:

‘must ensure that this decision is recorded in the minutes and that all other meeting requirements are met. You should ensure that you have a robust system to ensure only those eligible to vote can do so and that you record who has voted and the percentages of votes cast.’

The Commission also offers some guidance there for charities which are not able to rely on the CIGA 2020 provisions and we offer some suggestions in our blogs of 1 July 2020 and 21 May 2020. 

Wrongful trading

CIGA 2020 also contained a temporary suspension of wrongful trading provisions, aimed at allowing company directors and charity trustees of CIOs to continue operating through the emergency without the threat of personal liability.

The suspension was introduced for a period from 1 March to 30 September 2020. However, whereas other periods, such as that for members’ meetings referred to above, were extended, this suspension of wrongful trading was not, and so that relief ended after 30 September 2020.

The new regulations essentially replicate the terms of the original suspension, but for a new period beginning on 26 November 2020 and ending 30 April 2021. As with the original suspension, it should apply to directors and to charity trustees of CIOs.

Reintroducing the suspension may offer some comfort to charity trustees trying to manage their charities’ operations among the continuing demands of the pandemic, often juggling varying restrictions across the country. However, if a charity is in financial distress, the temporary suspension does not relieve the charity trustees of other duties and responsibilities which can then apply. The Charity Commission has further information on this, which can be found here, and if charity trustees are worried, please speak to your usual BDB Pitmans contact or our restructuring and insolvency team who will be able to talk you through your concerns.

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