CIO Conversion Process

[Stephen Inman]

We have begun the process of converting to a CIO with the intention that the existing trustees of the present unincorporated charity will become the new trustees of the CIO. We have been given legal advice that this may pose a conflict of interest when it come to transferring the assets and that it would be helpful (or essential?) if some at least of existing trustees did not exercise both roles. This seems very odd. On a very practical level I would not want any of our trustees to feel they had to resign and I would not want to find a group of completely new trustees for the new CIO. I have not heard of this problem before or am I missing something? Surely if there is in theory a conflict, the Commission can be invited to give approval upon receiving confirmation from me as Clerk that the trustees have carefully considered al the issues, taken advice etc and for themselves have nothing whatsoever to gain??

Stephen Inman
Clerk
Lasletts Charities, Worcester

[Clare Heyes]

Stephen,

I have been involved in the conversion of several charities that I clerk to CIOs. In every case the original Trustees became Trustees of the CIO. In every case we had legal advice and at no time was any conflict of interest brought up. As the CIO receives all assets I do not see how this could possibly be the case. I suggest you ask for an explanation of the advice received as it seems very strange.

Good luck!

[William Clemmey]

Stephen
Yes there is a conflict of interest since the trustees of the CIO are going to be receiving all of the assets and liabilities of the unincorporated charity and as trustees of the unincorporated charity gain limited liability

See
https://www.gov.uk/guidance/how-to-transfer-charity-assets#:~:text=Because%20they%20will%20be%20gaining,to%20merge%20or%20change%20structure
specifically section 4
Limited liability
The trustees of charitable companies and CIOs have the benefit of limited liability. This means that the trustees are not normally liable (or responsible) for the charity’s debts. If the charity was unable to pay its debts, creditors (those the charity owed money to) could take action against the charity, but not the trustees.

The trustees of an unincorporated charity gain the benefit of ‘limited liability’:

when their charity merges with, or changes structure to, a charitable company or CIO and
they become trustees of the charitable company or CIO
Because they will be gaining this benefit, the trustees of the unincorporated charity who are also trustees of the receiving charity have a conflict of interest and should not vote in the decision to merge or change structure. You will need authority if you do not have enough trustees who can manage this conflict of interest and make the decision.

So, you will need authority if:

the transferring charity is an unincorporated charity (a trust or unincorporated association), and
the receiving charity is a CIO or charitable company, and
you are transferring assets in order to merge or change structure, and
there are not enough trustees at the unincorporated charity who are not trustees of the CIO or charitable company (or are connected to a trustee at these charities) to manage the conflict of interest and make the decision to merge or change structure
It is the transferring charity that applies for and must receive authority.

Authority is provided under section 105 of the Charities Act 2011 (as amended).
….,
So you should apply for this from the Charity Commission Apply for authority. https://forms.charitycommission.gov.uk/tell-us-about-something-else/?formsubtype=CAT-02201

Very happy to send you the documentation we used

William Clemmey
chiefofficer@municipal-charities.org.uk

[lana_sh]

Hello Stephen,

We had to seek authorisation for Charity Commission under section 105 of the Charities Act 2011 for this purpose as well. It is an easy procedure, however CC may take some time to reply.

Kind Regards,
Lana

[ljardine]

This is useful as we are looking to go the same way. Can anyone recommend a solicitor experienced in this area?

Kind regards
Lynne Jardine
Guildhall Feoffment
Bury St Edmunds

[Kevin Cahill]

Hi Lynne/Stephen and All

Clifton Parish Houses are going through the CIO with the new CIO charity having been set up. We are employing one of the Solicitors on the AA Forum and they are dealing with Resolutions, Properties and General advice/process management.
If anyone has previously undertaken the following steps and is willing to share their experiences and/or detailed steps/documents to accelerate the learning experience it would be truly appreciated.

We are a Private Registered Provider (“PRP”) with RSH and have two historic improvement grants from Homes England and so are embarking on the following steps:
1. Homes England
Please note, under paragraph 2.6.10 of Section 7 of the Capital Funding Guide, a change in the legal status of a Registered Provider from an unincorporated body to an incorporated body (as is happening for Clifton Parish Houses), is a relevant event (Relevant Event (j)) triggering the repayment of any grant.  It is Clifton Parish Houses responsibility, as a Registered Provider, to contact Homes England to discuss the change of legal status.
2. Regulator of Social Housing
Please note, the Regulator of Social Housing will require notification within 10 working days of a change in relation to a charitable Registered Provider’s trusts or purposes, including a change to the registration number with the Charity Commission.  The Regulator of Social Housing will require an explanation of why the change was made (i.e. in Clifton’s case, due to its incorporation).  The change will not take place until the resolutions detailed below are passed and the assets transferred between the Old Charity and New CIO.
3. Bank Accounts – has anyone managed to get their Bank (CPH bank with Lloyds) to novate the existing bank accounts to the new CIO to save setting up new Mandates, Users, DDs Payment profiles, etc?

Kevin Cahill – Chair Trustee
kcahill@cliftonparishhouses.org.uk
07984 273729

[William Clemmey]

Dear Kevin
All the best with your conversion process – I shall send you some of our documentation which might help including TUPE of staff if you have any

With regard to your questions
We are a Private Registered Provider (“PRP”) with RSH and have two historic improvement grants from Homes England and so are embarking on the following steps:
1. Homes England
As a registered provider you have to contact Homes England to check that you have not had any grants from them in the past. If you have you have to send them a letter asking them to approve the transfer to the CIO (- I will send you the one we are using.) They discovered more grants that we were not aware of. Due to problems this has taken 2 years so far – the main being our slow solicitors plus the fact that we need permission from the Charity Commission to release the permanent endowment of one of the charities under section 105 the other almshouses have been transferred under a vesting declaration whereby The Charity Trustee makes this declaration under section 310 of the Charities Act 2011 (as modified by regulation 61 of the Charitable Incorporated Organisations (General) Regulations 2012 (SI 2012/3012)) to vest all the Property of the Transferors in the Transferee.

2. Regulator of Social Housing
We have registered the CIO with the Regulator of Social Housing – it was an easy process once we explained we were moving to becoming a CIO contact Alison Lamb – Alison.Lamb@rsh.gov.uk who is dealing with our case
We now have 2 registrations with RSH for the old charity and the CIO
However, due to us having received grants from Housing England’s predecessor we cannot dissolve the old charity until we have permission from Homes England to transfer the Almshouses to the CIO (see above). So despite the old charity now being a linked charity to the CIO and so effectively not existing we are waiting on the Charity Commission. Housing England also want the Almshouses to be transferred to the CIO at the land registry

3. Bank Accounts – has anyone managed to get their Bank (CPH bank with Lloyds) to novate the existing bank accounts to the new CIO to save setting up new Mandates, Users, DDs Payment profiles, etc?
Sadly Lloyds Bank will not do this. Once the CIO is constituted then you have to open a new bank account. It took us 7 months to do this with Lloyds as they kept losing the paperwork – we ended up with £140 compensation).
We have had to inform all residents etc of the new bank account and its taken us over 2 years to finally close the old account

TUPE – if you have staff then they will need to be TUPE’d across from the old charity to the CIO. If you do have staff its worth thinking about the date you choose to transfer all of the assets and liabilities from the old charity to the CIO
We did this at 11.59 pm on 30 September 2023. The result is that since the CIO has to register as a new entity with HMRC we obtained 2 lots of the Employment Allowance that year -so we gained £5000 from becoming a CIO (the figure is now £10,500 which will help pay your legal costs)
William Clemmey
chiefofficer@municipal-charities.org.uk

[Stephen Allison]

Our Alms houses received a grant from Housing England’s predecessors in the 1980s towards the cost of a new heating system. Housing England are now blocking our transfer to a CIO unless we repay nearly £60,000. Our solicitor and accountant cant see any way round it.

[William Clemmey]

Stephen
Provided that you are simply transferring all of the assets and liabilities of your current charity to the CIO then there should not be a problem
But you need to liaise with Homes England about this
see above
1. Homes England
As a registered provider you have to contact Homes England to check that you have not had any grants from them in the past. If you have you have to send them a letter asking them to approve the transfer to the CIO (- I will send you the one we are using.) They discovered more grants that we were not aware of. Due to problems this has taken 2 years so far – the main being our slow solicitors plus the fact that we need permission from the Charity Commission to release the permanent endowment of one of the charities under section 105 the other almshouses have been transferred under a vesting declaration whereby The Charity Trustee makes this declaration under section 310 of the Charities Act 2011 (as modified by regulation 61 of the Charitable Incorporated Organisations (General) Regulations 2012 (SI 2012/3012)) to vest all the Property of the Transferors in the Transferee.

I would be very happy to share our Homes England contact which is Holly Jacobs
Email: Grant_Notifications@homesengland.gov.uk
She understands the situation
Happy to chat to you about it and share the holding letter we are sending them whilst we transfer the Almshouse property at the Land Registry from the Official Custodian of Charities to the CIO
William Clemmey
chiefofficer@municipal-charities.org.uk

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