OG53 A1 - CHARITABLE APPEALS

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OPERATIONAL GUIDANCE

CHARITABLE APPEALS – AVOIDING AND DEALING WITH FAILURE

THE EFFECT OF SS.13, 14 AND 14A OF THE CHARITIES ACT 1993

OG 53 A1 – 18 March 2008

Purpose

A charity's appeal for funds is deemed to have 'failed' if there is any difficulty in applying the property for the purposes contemplated by the appeal. This may arise when insufficient funds are raised for the purposes, or where the purpose is achieved, but a surplus of funds remains. This guidance explains how ss.13, 14 and 14A of the 1993 Act (as amended by the 2006 Act) are applied in these situations, but also explains in section 1.2 the steps trustees can take to prevent charitable appeals from failing.

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Contents

1. Introduction
2. Dealing with failed appeals
3. Section 14 of the 1993 Act
4. Section 14A of the 1993 Act
5. General questions
Glossary of Terms used in this Guidance

Index to further related information


The Law	Refer to a lawyer	Refer to an accountant

1. Introduction
	1.1 Why do some charitable fundraising appeals fail? 1.2 Is it possible to reduce the chances of a charitable appeal failing at all? 1.3 If an appeal fails, can the funds be used for other charitable purposes? 1.4 Why are there different rules for specific charitable appeals that fail from the outset? 1.5 How do the Commission’s powers to deal with failed appeals work alongside good fundraising practice?

	1.1 Why do some charitable fundraising appeals fail?
	Charity trustees cannot always predict how successful an appeal will be, or whether circumstances may change unexpectedly. An appeal may fail to reach its target, costs could increase unexpectedly, or a change in circumstances may make it impractical to carry out the purpose of the appeal. This can be frustrating and disappointing for the organisers of the appeal, donors and potential beneficiaries.
	In legal terms, an appeal fails when some or all of the funds raised cannot be applied for the purpose(s) stated in the appeal.
	This might be because, for example:
	the appeal was for a specific charitable purpose, and insufficient funds were raised to carry out the purpose; or
	the appeal was for a specific charitable purpose which was completed and there were funds left over; or
	the appeal was for a specific charitable purpose that was no longer needed or could not be carried out; or
	the appeal was for the benefit of a charity that ceased to exist.
	From these examples, you can see that there is a greater risk of an appeal failing if it is for a specific purpose.

	1.2 Is it possible to reduce the chances of a charitable appeal failing at all?
	Yes. If an appeal fails, it is normally because the purpose of the appeal was too specific and circumstances did not work out in the way that the appeal’s promoters expected.
	A fundraising appeal is less likely to fail if the purpose of the appeal is broad, rather than narrow. For example, a charity can raise funds for its general purposes; general funds can be used for any purpose or activity of the charity.
	We recognise, however, that people often set up fundraising appeals to meet a specific need. If the trustees decide that a need can most effectively be met by a specific appeal, the simplest way to prevent a specific appeal from failing is to include a wider secondary purpose. For example:
		"We are raising funds to buy a scanner for the hospital. If for any reason we can’t buy the scanner, or there are surplus funds left over following the purchase of the scanner, we will use the money to buy other equipment that the hospital could not otherwise have."
	Alternatively, charities can make the appeal for the general purposes of the charity, for example:
		"Here is an example of one of our projects. To support this and other projects that we run, please give a donation to our charity."
	We recommend as general good practice that charities include such provisions in all fundraising appeal literature.
	There may be circumstances in which the trustees do not think that such an approach would be appropriate. A small minority of donors may object to having their donation applied in other ways. When deciding on the terms of an appeal, trustees should take into account the likely views of potential donors and any risk to the success of the appeal that may result from its terms.
	Before conducting any appeal, the trustees should carry out sufficient preparation and planning, taking account of the legal requirements and good practice explained in this guidance.

	1.3 If an appeal fails, can the funds be used for other charitable purposes?
	Yes, but usually this will only be possible if the Commission makes a Scheme. A Scheme is a legal document that alters the purpose for which the funds can be applied. The new purposes must be similar to (‘cy-près’) the purposes for which the funds were originally raised.
	Special rules apply to appeals for specific charitable purposes that fail from the outset, without achieving any of their purposes. Some donors may be entitled to have their donations refunded before any remaining funds can be applied cy-près. This is explained below.

	1.4 Why are there different rules for specific charitable appeals that fail from the outset?
	If an appeal for specific charitable purposes fails from the outset and the purpose of the appeal cannot be achieved (described in law as initial failure, or sometimes as failure ab initio), we cannot automatically assume that donors had a general charitable intention (i.e. that they would have been willing to support wider charitable purposes). In such circumstances the trustees would otherwise be obliged to refund the donations.
	For example, if donors gave to a charitable appeal to purchase a particular piece of medical equipment for a hospital, and insufficient funds were raised, neither the trustees nor the Commission could just assume that the donors would have been happy for their donation to be used for any other charitable purpose to benefit patients at the hospital. Similarly, we could not assume that donors who supported an appeal to restore a particular building or purchase a particular work of art would have been happy to make a donation for other similar purposes.
	For this reason, special provisions are needed that take account of the rights of donors who can be traced, either to reclaim their donation or to agree to it being applied cy-près. These are contained in sections 14 and 14A of the 1993 Act.
	"Failure" for the purposes of sections 14 and 14A of the 1993 Act is defined in s.14(7). Most legal experts agree that this definition means initial failure. In cases where an appeal has achieved its purpose, but surplus funds remain which cannot be used (subsequent failure), donors are not entitled to a refund, and we can use our powers to make a scheme under section 13 of the 1993 Act (as explained in OG 2).
	Failed charitable appeals administered by NHS Trustees are dealt with under s.222 of the National Health Service Act (which restated S.96A National Health Service Act 1977). The donor is not entitled to have their donation returned; the funds are automatically applicable cy-près (subject to any specific provision in the appeal literature).
	For further information on NHS charities, contact our NHS Charities Unit on 0151 703 1528 or email alex.young@charitycommission.gsi.gov.uk.

	1.5 How do the Commission’s powers to deal with failed appeals work alongside good fundraising practice?
	Sections 2, 3 and 4 of this guidance explain the framework provided by sections 14 and 14A of the 1993 Act for dealing with appeals for specific charitable purposes which fail from the outset.
	Because of the way in which section 14A is worded, those provisions could only be used if a charity worded its appeal appropriately and gave the required information to donors straight away. For the reasons explained at 5.1 and 5.2 of this guidance, we recommend that charities only use these provisions where there are particular reasons for doing so; in other cases they should follow the good practice set out at 1.2 above.
	If trustees neither followed the good practice set out at 1.2 nor followed the framework provided by section 14A, the only way of dealing with a failed appeal would be to use the powers in section 14.

2. Dealing with failed appeals
	2.1 What powers does the Commission have to deal with failed appeals? 2.2 When would Section 14 apply? 2.3 When would Section 14A apply? 2.4 In what circumstances would we not need to use s.14 or s.14A at all?

	2.1 What powers does the Commission have to deal with failed appeals?
	Section 14(1) of the 1993 Act enables the Commission to make a cy-près Scheme for property that has been given for specific charitable purposes where:
	the donor cannot be identified or cannot be found, or
	the donor has made a written disclaimer, relinquishing his right to have the property returned.
	Sections 14 and 14A deal with two different situations and set out the steps that trustees must go through in each case before the Commission can make a Scheme under section 14(1).

	2.2 When would section 14 apply?
	Section 14 would apply to property given:
	for specific charitable purposes;
	which failed from the outset; and
	where section 14A did not apply.

	2.3 When would section 14A apply?
	Section 14A would apply to property given:
	for specific charitable purposes; and
	in response to an appeal or request ("solicitation"); and
	where the solicitation is accompanied by a statement informing donors that if the specific purposes failed, donations would be made applicable for similar charitable purposes, unless the donor made a written declaration at the time of making his/her donation that, if the specific charitable purposes failed, s/he wished the trustees to give him/her the opportunity to request the return of his/her donation; and
	where the specific charitable purposes fail from the outset;
	Section 14A does not specify the nature of the statement informing donors of their right to complete a disclaimer. A verbal or written statement (e.g. a leaflet) would seem to meet these requirements although it may be more difficult to provide evidence of a verbal statement than of a written statement.

	2.4 In what circumstances would we not need to use s.14 or s.14A at all?
	a. Surplus funds from an appeal project that has been completed ("subsequent failure")
	If the purpose of the appeal has been carried out, and a surplus remains, the appeal has not failed completely. The surplus funds are not returnable to the donors, and we can use our powers to make a Scheme under section 13 of the 1993 Act (as explained in OG 2), without having to go through the steps set out in sections 14 or 14A.
	b. Appeals that specify circumstances in which funds could be applied for other charitable purposes
	If the wording of the appeal included provisions that stipulate how any surplus would be utilised, or how funds would be used if insufficient funds were raised for the main purpose of the appeal, then the trustees must apply the funds in accordance with those provisions. A Scheme will not be needed unless there is also difficulty with applying the funds for the wider purposes.
	For this reason, we recommend as good practice the inclusion of such provisions in all fundraising appeal literature (unless in a particular case the trustees have identified good reasons not to – see 1.2 above).
	c. Appeals for general funds
	If an appeal was for the general purposes (i.e. any purpose, or no specific purpose) of a charity, it is unlikely that it would fail. The charity would be free to apply these funds as it saw fit. No Scheme would be needed.
	d. Failed appeals containing less than £1,000, all belonging to unidentifiable donors
	As part of our approach to proportionate regulation, if the total funds raised within a failed appeal were less than £1,000, and all of these funds belonged to unidentifiable donors (see 3.2 below), we may decide that the trustees can automatically apply the funds for purposes similar to those of the original appeal, without any legal authority from us. For further guidance on the principles that we apply in such cases, see section 6 of our guidance OG 200 A1 Small charities: principles of Commission policy

3. Section 14 of the 1993 Act
	3.1 How does s.14 work in practice? 3.2 When are donors presumed or deemed to be unidentifiable under s.14? 3.3 What do the Commission’s regulations under s.14 do?

	3.1 How does s.14 work in practice?
	If a failed appeal falls within the provisions of s.14, responsibility falls on the trustees:
	to contact donors who can be identified and contacted, and return their donation to them unless they sign a disclaimer;
	to give any other identifiable donors the opportunity to come forward and reclaim or disclaim their donation, by:
		advertising the fact that the appeal has failed;
		trying to trace donors who can be identified;
		advising donors of their right to have their donation returned;
		allowing three months for donors to make any claims.
	The precise steps that trustees must take are set out in regulations made by the Commission (see OG 53 B1). Once these steps are completed, the Commission can make a cy-près Scheme to alter the purpose for which the remaining funds can be applied. However, if the any of the remaining funds belong to donors who can be identified but have still not been traced, the Scheme must create a reserve fund, which the trustees must keep for six months from the date the Scheme is made. This is for the benefit of any donors who make a claim within that six month period for the return of their donations. After that, any funds remaining in the reserve are applicable for the charitable purposes of the Scheme.
	It follows that a failed appeal under s.14 may contain three different types of funds, which need to be treated differently:
	funds donated by donors who are both identifiable and can be contacted;
	funds donated by donors who are identifiable but who cannot be contacted;
	funds donated by donors who are legally unidentifiable (see below).
	The trustees will need to identify which funds fall within each category and deal with them as required by s.14.

	3.2 When are donors presumed or deemed to be unidentifiable under s.14?
	Section 14(3) provides that cash from collections where individual gifts cannot separately be identified (e.g. from collection boxes), and the proceeds of lotteries, competitions, entertainments, sales or similar fundraising activities, are automatically presumed to belong to unidentifiable donors.
	Section 14(4) (as amended by the 2006 Act) empowers us (or the court) to direct by order that funds should be treated (without advertisement or inquiry) as belonging to unidentifiable donors where in our (or the court’s) view:
	the cost of attempting to trace donors would be disproportionate to the amounts likely to be returned; or
	in view of the circumstances (e.g. the nature of the gifts, the passage of time) it would be unreasonable for donors to expect the property to be returned.
	If all of the funds have been given by donors who are presumed or deemed to be unidentifiable under s.14, then there would be no requirement for the charity to publish advertisements or conduct inquiries.
	This power (as amended by the 2006 Act) is exercisable by the court or the Commission.
	Any application to the court may constitute charity proceedings within the meaning of s.33 of the 1993 Act, and if so, an application to the court would require an Order from us, under s.33(2).
	If the trustees inform us that they intend to apply to the court, the case should be referred to Legal division for advice. As the Commission can now direct that funds were given by unidentifiable donors, a charity would have to have very good reasons for wanting to apply to the Court, rather than the Commission, for a direction.

	3.3 What do the Commission’s regulations under s.14 do?
	Section 14(1) and (5a) of the 1993 Act gave the Commission power to make regulations, (which are set out in detail in OG 53 B1). The regulations prescribe:
	the form and manner in which advertisements published in pursuance of s.14(1)(a)(i) must be published;
	the manner in which any inquiry made in pursuance of s.14(1)(a)(i) must be made;
	the period for the purposes of s.14(1)(a)(ii); and
	the form in which any disclaimer executed in pursuance of s.14(1)(b) must be executed.
	These Regulations originally came into force 24 June 1993, and have now been combined with regulations made under s.14A (see below).
	The form of advertisements made under s.14(1)(a)(i) is set out in schedule 1 of the Regulations and schedule 2 prescribes the manner in which the advertisement must be published.
	Trustees are expected to send a letter to any donor whom the trustees can identify but are unable to contact, at whatever address they have recorded for him or her (if any). Schedule 3 sets out the information which must be contained in the letter. The trustees must attempt to inform these donors of their entitlement to the return of their donation, provided that they reply within three months of the inquiry, and of their rights to make a claim within six months of the date of the Scheme.
	Schedule 4 sets out the form of disclaimer to be completed by donors who wish their donations to be applied cy-près under the Scheme.
	It is important to note that we have no authority to waive the requirements of the Regulations. Advertisements must be published in the form set out in schedule 2 and the donor's disclaimer must be in the prescribed form.
	If a donor is unwilling to complete a disclaimer in that form, then the sum of their donation must be repaid to them if they can be contacted. If after completion of the advertisement and inquiry procedure an identifiable donor cannot be contacted, then their donation can be included in the Scheme, but it must be covered by the six month reserve fund mentioned above.
	If a case arises where the prescribed forms are not followed, it should be referred to Legal Division for advice.

4. Section 14A of the 1993 Act
	4.1 How does s.14A work in practice? 4.2 What do the Commission’s regulations under s.14A do?

	4.1 How does s.14A work in practice?
	If an appeal falls within the provisions of s.14A, the onus is on each donor, at the time of making their donation, to complete a written declaration if they do not want their donation used for other charitable purposes in the event of the appeal failing.
	Section 14A(10) provides that the definition of "failure" in section 14(7) also applies to section 14A. It follows that a declaration under s.14A would only come into effect if the appeal failed from the outset, as explained at 1.1 above.
	In the event of the appeal failing, the charity trustees would then be required:
	to contact any donors who made declarations, advising them that the appeal has failed, and asking them whether they wish to request their donations to be returned;
	to comply with any such requests made within the time frame specified in the regulations (three months);
	Once these steps are completed, the Commission can make a cy-près Scheme to alter the purpose for which the remaining funds can be applied. The property can be treated as if it belonged to a donor who had disclaimed their right to have the property returned. No donors have any further rights to make a claim.

	4.2 What do the Commission’s regulations under s.14A do?
	Section 14A(9) of the 1993 Act gave the Commission power to make regulations, which are set out in detail in OG 53 B1. The regulations prescribe:
	the steps that trustees must take under section 14(5)(a) and (b) to inform the donor of the failure of the purposes of the appeal and enquire if s/he wishes to request the return of his/her donation;
	the time period in section 14(5) and (6) within which the donor must make such a request;
	The regulations require trustees to keep proper records of all relevant declarations, and in the event of the specific charitable purpose of an appeal failing, to send written notification to all donors who made declarations, advise them of the failure of the specific purposes, and advise that if they wish to exercise their right to request the return of their donation they must do so within three months of the date of the notification.

5. General questions
	5.1 Do charitable fundraising appeals have to be registered with the Commission? 5.2 Must the terms of charity fundraising appeals comply with s.14A and offer donors the opportunity to sign a declaration? 5.3 If appeals can automatically include a secondary, more general purpose that prevents them from failing and avoids the need for a Scheme, and it is good practice to do so, is there any reason to use the alternative mechanism created by s.14A? 5.4 What form should a statement under s.14(2)(b) take? 5.5 Do "donations" only include cash? 5.6 Can surplus funds be returned to donors if the appeal exceeds its target? 5.7 Could an identifiable donor to a failed appeal request a refund and then make a new donation of the same amount? 5.8 What about gift aid on returned donations? 5.9 What about interest and administrative costs on returned donations? 5.10 Can a charity return a donation in any other circumstances?

	5.1 Do charitable fundraising appeals have to be registered with the Commission?
	Generally, no.
	Although we take the view that a fundraising appeal for specific charitable purposes creates a restricted fund or special trust, it would not need to register as a charity if any of the following applied:
	It was carried out by an existing charity under powers in its governing document and the trustees did not intend to create a separate charity; or
	It was carried out for the benefit of an existing charity and the terms of the appeal gave the fundraisers no discretion over how to apply the funds; or
	It was expected that the funds would be paid to a charity or charities, or applied for the purposes of the appeal, within a short period of being raised (e.g. 21 days); or
	It did not meet the requirements for compulsory registration (e.g. annual income of at least £5,000).
	The Commission can advise on any specific case.

	5.2 Must the terms of charity fundraising appeals comply with s.14A and offer donors the opportunity to sign a declaration?
	No. The provisions of the 1993 Act make it clear that use of these provisions is optional and s.14A will only apply to an appeal if the charity takes the step of informing donors at the outset that in the event of the appeal failing their donation will be applicable for other similar charitable purposes unless they sign a declaration to the effect that they would like the opportunity to reclaim their donation, as explained at section 2.3 (above).

	5.3 If appeals can automatically include a secondary, more general purpose that prevents them from failing and avoids the need for a scheme, and it is good practice to do so, is there any reason to use the alternative mechanism created by s.14A?
	We anticipate that in most cases, it will still be simpler for charities to word their appeals in such a way that if the primary purpose of the appeal failed, funds would automatically become applicable for other purposes without involving the Commission or going back to donors.
	There may be particular cases, however, where charities decide that it is in their interests to use these provisions, for example in the case of substantial donations where the donor wants to retain some control over how the funds are used, or if trustees are concerned that some donors might object to having their donations applied for other purposes.
	We recommend that charities only use the provisions of s.14A in preference to recommended good practice where the trustees have decided that there are good reasons for doing so.

	5.4 What form should a statement under s.14A(2)(b) take?
	Section 14A(2)(b) stipulates that the provisions of s.14A can only apply where a solicitation is accompanied by a statement explaining that if the appeal fails the gift will be applied cy-près unless the donor completes a written declaration to the contrary. Section 14A doesn’t specify whether the statement has to be verbal or in writing, but it does specify the information that the statement must contain if the section is to apply.

	5.5 Do "donations" only include cash?
	Under the provisions of sections 14 and 14A, donations can include property of any kind, or property (e.g. investments) bought using the original donation.

	5.6 Can surplus funds be returned to donors if the appeal exceeds its target?
	Not normally. As explained at 2.4 above, where the purpose of the appeal has been achieved, and a surplus of funds remains, surplus donations are normally applicable cy-près under our powers in section 13 of the 1993 Act, and donors would have no claim over their donations.
	Any donor wishing their donation to be repaid if there was a surplus must reserve this right explicitly when making the donation. If they do so, section 14 is unlikely to be relevant, because the donor is likely to want their money back in these circumstances. However, in theory s.14 could apply, if the donor has become untraceable, or has changed his or her mind and disclaimed. In practice such a request is uncommon.
	Where such cases arise, they should be referred to Legal division for advice.
	If the appeal contains any provisions that stipulate how any surplus should be utilised, or how funds are to be used if insufficient funds are raised for the purposes of the appeal, then the trustees should apply the funds in accordance with those provisions and the need for a Scheme should not arise.

	5.7 Could an identifiable donor to a failed appeal request a refund and then make a new donation of the same amount?
	Yes, that would be within the donor's discretion.

	5.8 What about gift aid on returned donations?
	If a charity claimed gift aid on a donation which was later returned to the donor under s.14 or s.14A, the charity should inform HM Revenue and Customs.

	5.9 What about interest and administrative costs on returned donations?
	It is likely that, as part of prudent financial management, a charity would invest donations in order to accrue interest. If a donation was later returned to the donor under s.14 or s.14A, our understanding of the provisions is that the donor would not be entitled to any interest.
	The charity is permitted to deduct properly incurred administrative expenses from the donation being returned.

	5.10 Can a charity return a donation in any other circumstances?
	This is not covered by sections 14 -14A of the 1993 Act. Charities can refuse or return donations where the trustees are satisfied that it would be in the charity’s interests to do so. For example:
	to accept a donation from a controversial source, or to keep a donation made by a donor who could not manage their own affairs, might harm the charity’s reputation;
	a donor might attach terms and conditions to a gift that the charity felt were unworkable in the circumstances;
	if the charity had any reason to suspect that the purpose of the donation was to enable money laundering or any other illegal purpose (for further information see our guidance OG 96 Charities and Terrorism.
	In such circumstances the charity might wish to seek advice or authority from the Commission in order to protect the trustees.
	Where such cases arise, they should be referred to Legal division for advice.

Glossary of Terms used in this Guidance
	1993 Act
	2006 Act
	court
	cy-près
	governing document
	restricted fund
	Scheme
	special trust
	trustees

Index to further related information