How do you merge three charities? Lesley Baliga explains how it has been done at Disability Rights UK.
Having worked on several large change projects through my career, the opportunity to bring together three relatively small membership charities seemed an exciting and relatively easy task – how wrong could I be.
Discussions started almost three years ago to merge Disability Alliance, Radar and the National Centre for Independent Living, each of which had as its main focus to support and campaign for disabled people. Each charity had a niche in the market, and all three were unlikely to be financially sustainable long term.
Different models of working together were explored, ranging from staying as independent charities and simply sharing premises and a back-office function, through to full merger. The decision to merge all three organisations was finally made early in 2011 and in August last year I was appointed as the interim director of resources to help make it happen.
Eight months later, Disability Rights UK has been formed as a new organisation; we have a team of experienced and motivated staff; policies and procedures are almost in place; and we are preparing for our first audit. It’s been fun, exhausting, stressful at times, but most of all extremely rewarding.
There’s a lot I could write about, but I will focus on two areas that may be useful to others going through a similar process – the legal structure and pensions.
In terms of the legal structure, we were advised to keep the original three charities as subsidiaries of the new charity so they could continue to receive legacies left specifically to any one of them. We obtained Charity Commission approval to do this.
Legal structure of new charity
We needed to amend the governing documents of each charity so that the new charity became their sole member. This effectively created the subsidiary structure. We held an EGM where we needed the members to agree to these changes, and also some other small amendments to the various governing documents, in order to ensure all the charities were consistent.
With different voting rights and counts for each of the four charities, the EGM was no mean feat, but the event went smoothly and was a big milestone in the inception of the new organisation. Most satisfying for me was the fact that we could, at last, revert to servicing one board rather than four.
Section 75 pension problem
One of the major issues for the trustees throughout the discussions was a deficit one of the charities had on its defined-benefit pension scheme. In short, we had two options on how to deal with it: either to transfer the ‘statutory employer’ responsibility to the new organisation or for the new charity to guarantee payment of any liability arising from the pension scheme.
We had a limited amount of pro-bono advice available to us, and it became obvious that the first option was likely to be prohibitive in terms of cost, so we chose to have a guarantee drafted.
In hindsight we were perhaps naïve to think that it would be that simple, and negotiations with the pension fund trustees continued until the last moment. There were different types of guarantees we could enter into and I found myself embroiled in the finer points of ‘guaranteed obligations’ and ‘section 75 debt levels’.
There was a risk that the pension trustees could decide that this was a case of ‘scheme abandonment’ and would feel it necessary to involve the Pensions Regulator. At the eleventh hour, and with some hefty legal bills, everything was eventually agreed, but it was certainly a risk to the merger and the implications of the issue hadn’t been fully appreciated at the beginning of the process.
All in all, I would say the merger has been successful. Money is still tight, but that’s the nature of charities at the moment. We all need to pool resources and work effectively together; whether by merging or just working in partnership.
We had an enquiry recently from another charity wishing to merge with us. There were mixed reactions from the senior management team, but the positive is that whatever happens next we have strong foundations on which to build our future.
Lesley Baliga is director of finance and resource at Disability Rights UK