How to say goodbye

LAW-CALL

How to say goodbye

The team at Law-Call, a 24-hour legal helpline available to all Alliance members, gives an overview of the closing down process for early years

Early years providers may have made the difficult decision to close their organisation for a huge range of reasons. Whether you are facing a reduced number of children, financial uncertainty or a shortage of staff, the closure of any organisation requires careful planning. There are several legal issues to consider, alongside redundancy processes and the disposal of any assets.

Different legal structures require different approaches before they can close. Your setting’s constitution documents should be scrutinised to establish which process and procedures should be followed.

When the management has made the difficult decision to close, it would be advisable to initiate conversations with staff and place employees “at risk” of redundancy. The first thing you should do is to be clear about the reasons why you are looking to close and need to make redundancies.

Committee-run settings
Settings managed by a committee will have to put a proposal to close to their members. The constitution document for the setting will describe who the members are – although, they are usually parents and any affiliate members. An extraordinary general meeting (AGM) must be called following the procedures described in the constitution. The committee require a minimum number of members to be present and you’ll need to obtain a majority vote in order to pass the resolution.

Corporate-run providers
Where a setting has a corporate status, it is a legal entity and must follow the Companies Act 2006 in order to close. The directors can either choose to voluntarily wind up or, if they cannot pay off their debts, they must involuntarily wind up the business. The process is initially similar – directors must first pass a resolution proposing closure to the members.

There are several legal issues to consider, alongside the redundancy process and the disposal of any assests.

The organisation’s accounts must be made, and a statutory declaration of solvency must be authorised by a majority of its directors. The directors must call a meeting to vote on a special resolution to liquidate the company with its members within five weeks of the declaration of solvency. They will also need to appoint an insolvency practitioner (IP) to take charge of the process at the meeting. A notice of the resolution must then be filed at Companies House within 15 days of the decision.

Where a company cannot pay off all its debts, this is referred to as the involuntary winding up of the business. There must be a declaration of insolvency and the IP will manage the closure process through the courts. Solvent companies can voluntarily strike the company off the register at Companies House – however we advise that you seek legal advice before doing so, particularly if your setting has charitable status.

Closing CIOs
A Charitable Incorporated Organisation (CIO) is a hybrid of a charity and a limited company. As the management structure is subject to the Charities Act 2011, the closure of a CIO is subject to the closure procedures in the trust document and the Charitable Incorporated Organisations (Insolvency and Dissolution) Regulations 2012.

The trustees of the CIO need to convene a general meeting with the proposal to dissolve on the agenda. They need a 75% majority to pass the resolution before they can make an application to the Charites Commission to request dissolution.

The Charities Commission require a statement of solvency and a declaration of what will happen to the charitable assets on closure. If the CIO is insolvent, then specialist advice should be sought as the process is more complicated.

Next steps
Once the vote to close has passed, management should take advice on the correct approach required to make staff redundant, otherwise they may be exposed to further liability for failure to follow a fair process.

All employees who are made redundant will be entitled to receive the relevant notice and any accrued holiday pay. A redundancy payment is also payable when an employee who has at least two years’ continuous employment is made redundant.

Assets must be sold for the best price possible and the money raised from this should be applied in accordance with the constitution for that setting. Where any property or assets are remaining, these shall not be paid or distributed. Pensions providers may need to be contacted and the retention of records need to be assessed and kept for the appropriate time.

Find out more
Closing a setting is a complicated process and this article only provides an overview of the initial process. This is also a potentially fraught and emotive time for staff and families. Members should contact Law-Call for advice on this process. Their contact details can be found in the Members’ Area of our website at: portal.eyalliance.org.uk.

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