This is the fifth and final part in a series of five blogs that outline the charity merger process – before, during and after the negotiation and signing of the asset transfer agreement ("Transfer Agreement").

In this Part 5 of the series, we focus on:

  • how to prepare for completion; and
  • what to think about post-completion, after the transferor charity has transferred its assets and liabilities to the recipient charity ("the transferee charity"), thereby completing the merger process.

Completion

Once the transferor charity and transferee charity have agreed the terms of the transfer documents, they will be ready to complete the merger. Completion has two stages – exchange and completion:

  • exchange is when the transferor charity and transferee charity commit to the transfer by executing (please see Part 4 of this blog series – signing the transfer documents) the Transfer Agreement and ancillary documentation (please see Part 3 of this blog series – implementation and the transfer agreement) and exchange the signed documents with each other; and 
  • completion is when all the required legal formalities to affect the transfer are completed and the transferor charity transfers legal title in its assets and liabilities to the transferee charity.

Typically, exchange and completion are carried out simultaneously. However, depending on the nature of the transfer, this will not always be possible. For example, sometimes there will be conditions to be fulfilled by the transferor charity before the transfer can complete, for example, the assignation of a lease may require landlord's consent. In these circumstances there will be a split exchange and completion to provide time for the conditions to be fulfilled so that completion may take place.

At exchange, the transferor charity and transferee charity sign the Transfer Agreement and any ancillary documents that are required in terms of the Transfer Agreement. These documents usually include (amongst others):

  • minutes of the board meetings at which each board (i.e. the board of the transferor charity and the board of the transferee charity) approve entry into and execution of the Transfer Agreement and any ancillary documents. At the relevant board meeting the board should also consider delegating authority to, for example, any director or any other appropriate person to negotiate and agree changes to the Transfer Agreement and any ancillary documents, to negotiate and agree any other documentation required to implement the transfer and to take any other steps required to implement the transfer. Authority should also be delegated as is appropriate to execute the documents on behalf of the charity. These decisions should be clearly documented in the board minutes;
  • dispositions in respect of any heritable property being transferred;
  • assignations in respect of any leasehold interests which are being transferred; and
  • novation agreements (used to transfer all rights and obligations under a contract) in respect of the transferor charity's interests in any contracts being transferred.

It used to be that completion meetings took place in person with all parties, lawyers and accountants meeting to sign and exchange the transfer documents. However, completions now tend to take place remotely via an electronic signing platform (e.g. DocuSign), email and/or use of a video conferencing platform. It is worth noting, however, that some documents may still need to be signed in "wet ink", for example, where a witness is required or certain documents relating to property.

Post-completion

There will be a number of post-completion matters for both the transferor charity and transferee charity to attend to. These post-completion matters typically include:

Transferor charity

  • Winding up: once the transfer has taken place, the transferor charity would typically begin the process of winding up. The exact process to be followed will depend on the transferor charity's legal structure. The charity's governing document should be consulted and any rules contained in the governing document followed.
  • Applying to Companies House for strike off: if the transferor charity is a charitable company, it will need to apply to Companies House to be struck off the register of companies. Before the company can apply to be struck off, the following conditions must be met:
    • The company must have ceased trading for at least 3 months.
    • No legal action should be pending against the company.
    • The company must not have changed its name in the past three months.
    • The company must be solvent.
  • Notifying the Office of the Scottish Charity Regulator ("OSCR"): once the transferor charity has taken the necessary steps to wind up, including in the case of a charitable company being struck off the register of companies, it must notify OSCR within three months. The transferor charity should have obtained OSCR's prior consent to winding up (see our blog covering this here); therefore, the notification process will involve submitting a declaration, signed by a charity trustee on behalf of all charity trustees, confirming that the charity has no remaining assets or liabilities. Once OSCR is satisfied with the information received, the charity will be removed from the Scottish Charity Register.

Transferee charity

  • Updating registers: it is sometimes agreed between the parties that charity trustees of the transferor charity will be appointed to the board of the transferee charity. If this is the case, the transferee charity's register of charity trustees (or, in the case of a charitable company, its register of directors) will need to be updated to reflect these new appointments.
  • Companies House filings: if the transferee charity is a company, and if charity trustees of the transferor charity have been appointed to the board of the transferee charity, the transferee charity will, within 15 days of their appointment, notify Companies House of the appointments. This process is usually carried out electronically, with the necessary forms being filed via WebFiling.
  • Land and Buildings Transaction Tax ("LBTT"): if the transferor charity owns land or property in Scotland which is being conveyed to the transferee charity, the transferee charity may need to submit a LBTT return. Similarly, if the transferor charity is assigning the tenant's interest in a lease of property in Scotland to the transferee charity, the transferee charity may need to submit an LBTT return. In some cases, the transferor charity will also need to submit a lease assignation return. Any LBTT return(s) required must be submitted within 30 days of completion but usually have to be submitted earlier so that the property transfers can be registered. LBTT relief may apply to the transfer (e.g. charities relief or group relief), such that no LBTT is due, but these reliefs can only be claimed in an LBTT return, so an LBTT return must still be submitted.
  • Registration of heritable titles and leasehold interests: the final step of completing the title transfer to the transferee will be to register any disposition in their favour (giving effect to the transfer of any heritable property) in the Land Register of Scotland (“the Land Register”). It is also important to check whether any leasehold interest (which has been transferred to the transferor by any assignation) is capable of registration in the Land Register. Leases with terms greater than 20 years will trigger an obligation to register the leasehold interest in the Land Register. It is important to note that either the hardcopy original signed lease documents or extract registered versions of them will be required to facilitate the registration of the interest of any leasehold title in the Land Register.
  • Personal data: the transferee charity must ensure that their privacy notice is made publicly available so that customers can see how their personal data is being used.

How Brodies can help

Ensuring that completion goes smoothly and that any post-completion administration is concluded, is a key final step to completing the merger of the two charities.

Our charity law team has experience advising on all steps of a charity merger, including completion and post-completion matters. If you would like any advice on the issues raised in this blog, or any of the earlier blogs in this series, please get in touch with one of our charity lawyers.

Contributors

Alexandra Peddie

Senior Solicitor

Kenneth Pinkerton

Partner

Lesley Wisely

Practice Development Lawyer

Paul Breen

Legal Director