The Regulator for Charities in England and Wales

Policy Statement on Mergers, Collaborative Working and Due Diligence

(Version October 2007)

The Cabinet Office’s Strategy Unit report Private Action, Public Benefit recommended that the Charity Commission should provide specific advice to facilitate mergers, possibly by creating a dedicated internal unit. In particular, the report recommended that the Commission produce regulatory guidelines, based on a light touch approach, to help charities identify and assess any risks and liabilities - sometimes known as a due diligence exercise - when considering potential mergers. The SU report also recommended that a package of legal measures should be introduced which could facilitate mergers and, more generally, enhance the administrative running of a charity.

The Charities Act 2006 addresses the statutory element of these recommendations:

  • making it easier to transfer property to a merged charity – future legacies and gifts will transfer automatically to the recipient charity, providing the merger is registered with the Charity Commission. In addition, charity trustees can transfer the title to certain types of property by making a vesting declaration, without the need for any further document of transfer;
  • simplifying the rules allowing small charities to merge and to modify their objects and making these powers available to more charities by raising the upper income limit;
  • relaxing the conditions for changing a charity's purposes;
  • giving all unincorporated charities a power to alter their constitutions and making it easier for charitable companies to amend their Memorandum and Articles;
  • speeding up the scheme and order making procedures;
  • streamlining the process for dealing with a failed fundraising appeal.

We examined the remaining non-legislative recommendations by investigating the options for providing advice on mergers and collaborative working in the most effective and efficient way. We now have a Mergers and Collaborative Working Unit which acts as both an internal and external focal point for merger and collaborative working issues. The aim of the Unit is to help facilitate complex mergers and collaborative working arrangements and to disseminate useful information about the subject.

In addition, in June 2006 we published guidance entitled Collaborative working and mergers – An introduction (CC34). This guidance also contains information about the due diligence process.
The guidance is aimed at charities across the board, whilst recognising that different types of charity will need to undertake different types of due diligence or merger assessment exercises depending on what they do and how they do it. The Commission works with NCVO’s Collaborative Working Unit (CWU), to ensure our respective work is complementary. In particular, we have recommended that sector professionals and umbrella bodies, such as the CWU might usefully develop a range of due diligence models for different types and size of merger.
Our guidance also reflects the Commission’s casework experience and findings which we published in our regulatory report RS4 - Collaborative Working and Mergers published in April 2003. That report outlined our regulatory stance and principles. In essence our starting point when considering charities and merger activity was that:

    • As part of the registration process, new organisations seeking to register as a charity should consider offering their services to, or combining with, an existing charity if there is a possibility of duplicating existing charitable work. However, it is not our role to push particular charities towards this way of working – they themselves must decide what is in the best interests of their users.
    • All charities should consider seriously and imaginatively whether there are ways in which they could do more and better for their beneficiaries by working together. Examples of this range from shared helplines, shared service delivery, combined grant administration and joint marketing or purchasing initiatives, to partial or full mergers. As good practice trustees should carry out regular reviews to explore their strategic position and possible partnership arrangements.
    • The majority of charities are small local organisations that rely on the unpaid help of their trustees and other volunteers. They may have similar purposes but they are all serving different communities. It is less likely that there will be areas of overlap and duplication or scope for cost-cutting for these charities. However, for many charities - particularly medium and larger sized ones - joint working or merger can make for more effective use of resources in meeting the needs of their beneficiaries.
    • There are few legal barriers to working collaboratively or to seeking a merger and the costs of exploring or participating in such arrangements represent an acceptable use of charitable funds.
    • Trustees considering a merger should ensure that all proposed partners carry out an appropriate disclosure or due diligence exercise which is proportionate to the size and nature of the merger.
    • Consultation with the Charity Commission at an early stage can help to achieve a smooth and efficient process in dealing with the legal and regulatory issues.
    • Our role in the merging and collaborative process is however limited to specific areas and our Regulatory Report on mergers and collaborative working signposts trustees to additional sources of information.