Written ByChris Ferguson
Director of Insolvency
Chris is Director of Insolvency at KSA Group.
Prior to this, Chris spent almost two decades working in senior roles for some of the UK’s largest professional services firms, including Deloitte and EY focusing primarily on corporate restructuring.
Chris is a licensed insolvency practitioner, a fellow of the Association of Chartered Certified Accountants and the former North East chair of insolvency and restructuring trade body R3.
The number of charities facing financial difficulty is expected to rise this year due to an unprecedented demand for support against a backdrop of increasing costs and reducing income.
That is the view of a North East restructuring expert, Chris Ferguson, who is Director of Recovery & Insolvency at RMT Accountants & Business Advisors based in Gosforth, Newcastle.
The charity sector continued to see high levels of distress in 2024 with the recent insolvency of counselling charity, Relate, being the latest high profile casualty within the not for profit and community services sector. The Chancellor’s Autumn Budget in October 2024 set out measures to help charities in the wake of the ongoing challenges facing the sector, but the rise of the national living wage and employer national insurance contributions (NICs), effective from April 2025, will place further burden on the finances of charitable organisations that are already struggling to cope.
Charity revenues are particularly susceptible to turbulent economic conditions. In addition to impending cost increases, the cost-of-living crisis continues to impact the disposable incomes of prospective donors, with increasing food and energy prices and the withdrawal of the winter fuel allowance likely to impact donations, placing further pressure on charity resources. Trustees are therefore being warned that the rise of charities in financial difficulty is likely to continue in 2025.
Findings from research undertaken by the Charities Aid Foundation (CAF) in 2024 showed that many charities are at maximum capacity and many more are being forced to make difficult decisions on who they can help. But, despite the overwhelming requests for support, one in eight charities are faced with having to make redundancies or reduce staff numbers. Half of charities reported that the cost-of-living crisis had negatively impacted staff and volunteer morale (52%) and many were struggling to recruit or retain suitably qualified candidates or volunteers (51%).
And CAF research shows that many charity leaders stated that they spend most of their time firefighting, with a third stated they feel the sector is ‘unhealthy’.
Chris Ferguson warns that Trustees need to urgently focus their attention on maintaining accurate financial information and emphasises the importance of Trustees continuously monitoring their financial position.
He says “Trustees must focus on monitoring and forecasting their income and expenditure for the year ahead, particularly given the significant wage and NIC cost increase they will face later this year following the announcements in the Autumn Budget. All Trustees have an obligation to ensure they have full visibility over their charity’s operation, ensuring that resources are managed responsibly and they are acting with reasonable care and skill when undertaking their role”.
Trustees must not lose sight of the importance of recognising these responsibilities, particularly where charities find themselves in financial difficulty. “Trustees are often volunteers giving up their own time to support their local communities. However, many do not fully appreciate that they can become personally liable for charity losses if they have not complied with their basic duties as a Trustee. This is clearly a risk many Trustees do not envisage when they agree to take on a voluntary role.” Ferguson warns.
Trustees are advised that some of the key warning signs of distress may include:-
Where Trustees believe that a charity is in financial difficulty, they should seek immediate professional advice. “We have supported a number of charities with financial issues over the past 12 months. Seeking support as early as possible means that Trustees are complying with their own statutory duties as representatives of charities. Initial advice is often free, so there is no cost for seeking independent professional advice as early as possible”.
Trustees that require a free initial discussion can contact Chris Ferguson on 0191 256 9500 or by email at chris.ferguson@r-m-t.co.uk or Chris Wray on 0191 256 9500 or by email at chris.wray@r-m-t.co.uk.
Relationship Counselling Charity is on the brink of Insolvency
Relate, one of Britain's biggest relationship counselling charities is on the verge of insolvency.This comes after a collapse of funding from NHS, school and local authority contracts, leading to financial difficulties that were unfixable.As a charity, about a third of its counselling services are funded by public sector contracts - so a collapse of funding is likely to have precipitated its fall.Relate covers couples and relationships counselling, family counselling, mediation, children therapy and sex therapy. It has been around since 1938, with Diana, Princess of Wales, being its patron in 1989.As it stands, Relate has been put into administration with 80 counsellors made redundant with immediate effect. The remaining 200 employees have been told that the charity has just 4-6 weeks to find a rescue buyer or merger partner. In the meantime, trading will continue.The charity has 26 local branches which act independently and are unaffected.This collapse could be problematic with client counselling sessions being forced to end.The charity sector, is affected by rising costs and demand partnered with declining donations and contract income. Not a good mix.According to MSN news, none of the staff received redundancy pay from the charity, under the terms of the administration. Longer-serving members have been advised to apply for compensation through the government redundancy scheme.Will Relate see a breakthrough? FRP Advisory are working on the options and will be in communication with employees and clients about the ongoing process.See below statements from the administrators and the company. Relate statement A spokesperson for Relate said: “Relate is the only non-profit organisation working across England and Wales through a network of Federated Centres to provide essential relationship support for individuals, couples, and families, regardless of the ability to pay. The Relate Federation is made up of the national charity (Relate Ltd.), which acts as a central support function and 23 independent Centres, as well as associated organisations in Northern Ireland, Guernsey, Jersey and the Isle of Man. In 2018 the Relate central support function (Relate Ltd.) developed an additional counselling service for areas of the country not covered by federated centres. The financial climate and the loss of government contracts has impacted Relate Ltd.'s ability to sustain that service. They are currently exploring various restructuring options that might be available to the charity in consultation with the local network of Centres.” FRP statement Relate's central support organisation has fallen into financial difficulty following the loss of government contracts. It will continue to trade while options for restructuring are considered.Relate operates on a federation basis and the activities of the 26 independent centres that make up the Relate Federation are not affected. They continue to deliver their relationship counselling and other services as normal.Phil Reynolds and Ian Corfield, partners at FRP Advisory, were appointed joint administrators of the Relate central support organisation on Tuesday 26th November 2024.It has unfortunately been necessary to make approximately 80 employees redundant. This is just under a third of the overall workforce and around 200 employees remain in post. Those affected are being supported with applications to the Redundancy Payments Service. Phil Reynolds said: “We’re exploring a number of options for the central support organisation and are in communication with both employees and clients about what the ongoing process means for them.”If you are a worried employee, see our guide on your options and rights here.
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