PT-2025-000104 - [2025] EWHC 2255 (Ch)

Section 1(1) of the Charities Act 2011 defines a charity as an “institution which (a) is established for charitable purposes only, and (b) falls to be subject to the control of the High Court”.

Section 34(1) of the Charities Act 2011 provides:

“the Commission must remove from the register:

(a)

Any institution which it no longer considers is a charity, and

(b)

Any charity which has ceased to exist or does not operate”.

An incorporated charitable company is treated as having ceased to exist when it is formally dissolved in accordance with the Companies Acts. A gift to an incorporated charitable company in insolvent liquidation will therefore not lapse.

An unincorporated charity terminates when it has disposed of all its funds in accordance with its governing document. This includes where the unincorporated charity has transferred all its assets and liabilities to a charitable company (even one carrying out the same purposes).

It has for many years been common practice for charities which have merged or incorporated to maintain “shell charities” after merger for the purposes of receiving legacies in the names of the old charities which might otherwise have failed for want of an extant donee.

The “register of relevant mergers” was introduced by the Charities Act 2006. In circumstances where a charity had ceased to exist after having transferred their assets to an incorporated charity the transfer could be registered as a “relevant charity merger”. Under s. 75F of the Charities Act 1993, later s. 311 Charities Act 2011, where a gift to the transferor charity “takes effect” on or after the registration of the merger then section 311(2) Charities Act 2011 can operate so that the gift takes effect to the transferee charity after the merger.

Section 311 was considered in the case of Berry v IBS-STL (UK) Ltd [2012] EWHC 666. In that case the testatrix gave her residue to be divided in equal shares between a number of charity beneficiaries if they were in existence at her death. The executors were given a discretion, in the event any of the named beneficiaries had never existed, ceased to exist or amalgamated with another organisation, or changed its name, to determine to whom that beneficiary’s share should be paid. Having made an interim payment to the incorporated successor of an unincorporated beneficiary, the executors sought directions whether they must pay the balance to the successor after it had become insolvent. The Judge concluded that the named beneficiary, having ceased to exist, was not a beneficiary at all so that the executors were able to exercise their discretion as to whom the remaining part of the share should be paid. There is no discussion in the case about the gift having been one for charitable purposes, presumably because it was unnecessary for the executors’ purposes.

As a result section 311 of the Charities Act 2011 was amended to apply to gifts to transferor charities which would have taken effect if the transferor had been in existence. Section 311(2A) provides:

“(2)

Subsection (2A) applies to a gift, other than an excluded gift, if—

(a)

the gift would have taken effect as a gift to the transferor if the transferor had been in existence, and

(b)

the date on which the gift would have taken effect is a date on or after the date of the registration of the merger.

(2A) The gift takes effect as a gift to the transferee.”

The new provision applies only to gifts which take effect after 7 March 2024 and not to the gifts in the Will (which would have taken effect on the Testatrix’s death).