getting collaboration right - jenny ebbage

© Cleaver Fulton Rankin 2011© Cleaver Fulton Rankin 2009

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Getting Collaboration Right Legal Issues

Jenny EbbageCleaver Fulton Rankin, Solicitors

30 March 2011

Please note: the contents of this presentation are for information purposes only and further advices should be sought from a suitably qualified professional adviser before any action is taken.

© Cleaver Fulton Rankin 2011


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Working Collaboratively

• Trust in each other

• Joint working on a project – formal or informal

• 2+ charities/enterprises – best interests of the beneficiaries/users

• To fulfill their purposes

• But remain separate entities


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Working Collaboratively - Issues for Board• Be clear about the benefits for users/beneficiaries

• How will you measure success?

• Who leads and what is role?

• Questions:

• are the organisations and activities compatible or complementary

• who is responsible and liable for what?

• Assess risk against benefit - risk mitigation factors

• What if the other party is in trouble?

• How do you terminate/exit the arrangement?


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Working Collaboratively – Legal issues for the Board•Is the charity acting legally - take professional advice where relevant

•Must act prudently in the interests of the charity

•Does it comply with the governing document/furthering the charitable purpose/objects of the charity?

•Is there power/capacity to undertake it?

•Are the benefits of the collaborative working clear?

•Duty of care to assess the risks and mitigate them

•Retain control of charity property


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Working Collaboratively – Structures

• Group structure – formal

• Affiliated structure/federal structure

• Coalition structure – “partnership of equals”

• Separate company, i.e. JV

• Consortium


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Working Collaboratively - Types of Agreements• Protocol

• Memorandum of Understanding

• Heads of Agreement

• Contract

• Service Level Agreement

• Consortia Agreement

• Joint Venture Agreement

• Not a “Partnership” Agreement?


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What are you getting into?

• Select appropriate type of structure for the type of venture

• Set the ground rules – do you understand each other?

• Always work out an exit plan from the start

• What level of legal input is required?

• What sort of agreement is required?

• Careful of accidently creating a “partnership” at law – joint & several liability for debts and liabilities


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Legal Basics

• Who are the parties? Are they equal? Who has signing authority?

• Legal structure and nature of all the parties

• Charities/social enterprises/CICs/companies ltd by guarantee

unincorporated/partnership/sole trader

• Due diligence – check out the viability of the other parties

• Is it to be a binding contract or non-binding?

• How much legal input do you need?


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Negotiation Process

• What is the shared purpose? What is the aim?

• Can you perform the obligations?

• Are the terms reasonable?

• Mutual agreement on making any changes to obligations

• Are additional documents/information properly incorporated?

• Are obligations ‘flowed down’ from e.g. Letter of Offer

• Does the contract reflect the expectations from the negotiation process?

• Do you need Sub-contractors? – flow down terms to them


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Staff & Management

• Who employs staff?

• Who line manages them?

• Division of time/location?

• Any changes to terms & conditions?

• Does TUPE apply?


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Is it a Heads of Agreement?

• Summary and agreement of points to put into a contract

• Not usually legally binding

• Should state ‘subject to contract’ and state not legally binding

• Can make some clauses binding, e.g. confidentiality clauses


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Key legal elements of a Contract

• Agreement (oral or written) between two or more parties/Made voluntarily/Which can be enforced by the courts

• Parties need ‘capacity’ to enter into it

• Parties must intend it to be legally binding

• Exchange of value between the parties – mutual obligations (promise something and get something in return)

• Obligations must be clear and defined

• Remedies for defaults


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Key Terms of contract• Term/duration – how long? Termination – how and consequences of breach

• Specification of services –milestones

• Obligations – who provides assets/staff/management/who owns them?

• Review mechanisms/Break Clause

• Limitation of liability & Indemnities

• Warranties

• Insurance

• Costs & VAT implications

• Dispute resolution


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Other terms of contract• IPR –eg copyrighted output material/models or charts – who owns it?

• Database created – who owns it?

• Transfers or licenses of IPR?

• Governing law – go for NI law

• Confidential information to be protected?

• Publicity issues?

• Data protection/Freedom of Information?

• Vulnerable people/children – get the clearances

• Third Party Rights – exclude


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Mergers

• merger – 2 or more organisations become 1

• transfer – of charitable undertaking from one or more organisations to one entity

• How will it benefit our beneficiaries/users?


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Any Potential Deal Breakers?• Incompatible objects

• Restricted reserves

• Pension scheme deficits

• Culture clash

• No true business case for merger

• Name and identity of merged entity

• Lack of support from members/groups

• Governance - composition of merged charity board

• Chair


Models1.New Holding Company – Group Structure

result:New Company

Charity 1 Charity 2

Parent-i.e. sole member ofcharity 1 & charity 2

Subsidiaries


Models2.New Charity New Single

Merged Charity

Charity 1 Charity 2

Dissolves Dissolves

Transfers

assets

employees

operations


Models3.Charity 1Subsidiary ofCharity 2

result:

Charity 2

Charity 1

Parent

Subsidiary


Models4.Transfer ofOperations

result:

Charity 1 Charity 2

Charity 1Charity 2

Transfers

assets

employees

operations

shell &will dissolve

Enlarged Body


Models5.2 Step

Transfers

assets

employees

operations

Charity 1 Charity 2Step 1

Charity 1Step 2Charity 2

ResultCharity 2

Charity 1

parent

subsidiary (shell co)(legacies?)


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Getting ready for a merger

• Is it a secret?

• Confidentiality Agreement

• Exclusivity and lock-out period

• Impact on the charity – people/time/CEO role

• Leadership – Trustees/CEO/senior management team

• Each charity needs a Project Manager

• Information/communication/negotiation

• Proportionate “vetting” of other parties – due diligence

• Plan the timetable and work


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Consider post-merger issues early

• Plan desired outcome at start

• Set a transfer/merger date

• Public perception of combined organisation

• Branding of merged charity

• People – staff, volunteers, beneficiaries, board members/trustees

• Funders

• Cost of transfer/merger


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Merger: Legal Process - 6-9 months

1. Confidentiality Agreement – identify deal breakers

2. All parties Heads of Agreement/Letter of Intent with lock-out period

3. Legal Due Diligence Questionnaire and Reports – on each charity and exchange with each other

4. Transfer of Charitable Undertakings Agreement

5. Property Transfer Deeds

6. Ancillary Documentation

• Board Minutes

• Resolutions

7. Regulator approvals – HMRC/CCNI/funder approvals/Dept approvals

8. Completion on target date


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What is legal due diligence?

A dual purpose legal investigation:

• to assess the viability of a potential collaboration or merger

• to identify legal issues

• to assist in the integration of the charities after the merger is “completed”.


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Key Areas to Investigate

• Legal capacity

• Employees and volunteers/TUPE

• Assets and liabilities

• Contracts

• Premises and properties

• IPR

• Financial

• Pensions


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Charities Act (NI) 2008 Pt 14 – not in force

• Merger provisions

• Transfer of gifts

• Registration of mergers


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For more information

Jenny Ebbage 028 9027 1302 [email protected]

www.cfrlaw.co.uk

getting collaboration right - jenny ebbage

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