The long slow thaw?
Charities with deposits at Icelandic banks may have a long wait before they hear whether or not the £235m or so estimated to be caught up in the collapse of these banks will be underwritten by the UK government. A freezing order has been made under anti-terrorist legislation against Landsbanki, which operates as Icesave in the UK and owns Heritable. Kaupthing Singer & Friedlander has gone into administration and it remains to be seen how this will affect the timing and extent of loss recovery.
Sector leaders met with government ministers on 10 October to demand a £500m government emergency fund and CFDG has written to the Treasury urging the Chancellor to reconsider the terms of the Financial Services Compensation Scheme, which has no specific provision for charities. Only those that fall within the definition of a small company or small unincorporated association are currently eligible. A joint statement issued by the umbrella groups reported that the Government had promised to make the ‘greatest effort to recover those funds at risk in the Icelandic Bank crisis’ and goes on to urge all affected charities to ‘come forward immediately so we can assess the extent of the problem and work with the Foreign Office, the Ministry of Justice and the Treasury to ensure charities’ vital resources are protected’.
The Charity Commission has set out some explanatory guidance to help those charities unclear about their eligibility to claim compensation under the Financial Services Compensation Scheme for the loss of their cash should their bank or building society fail. The scheme mainly applies to private customers, small companies and certain small ‘unincorporated associations’.
A small company is defined as one that meets at least two of the following conditions: a turnover of not more than £6.5m, a balance sheet total of not more than £3.6m, and not more than 50 employees.
Charities which are unincorporated associations will be entitled to claim, provided they do not meet the definition of a ‘large mutual association’, defined as having net assets of more than £1.4m.
Niall Brook, a partner in the charity team at law firm Blake Lapthorn, commented:'While charities who qualify under the FSCS are guaranteed to recover the full extent of their deposits, many charity depositors are not eligible.
Recovery of their deposits either in whole or in part will require further Government intervention unless the charities are to be left to recover the monies by claiming insolvency with the inherent uncertainty, cost and delay that will entail. It is potentially disastrous for some.’
www.fscs.org.uk
www.charitycommission.gov.uk/news/ fincomp.asp
www.ncvo-vol.org.uk/press/ releases/?id=11010
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