A recent Charity Commission report on The Friends of Blencathra Ltd demonstrates very well what can go wrong when an appeal for funds by a charity for a particular purpose is poorly worded.
The charity in question was formed by a community group raising funds to buy Blencathra Mountain in the Lake District National Park. They needed to raise £1.75 million, but unfortunately they were unsuccessful in their attempt. When it became apparent the appeal had failed, it also became clear that some funds received during the appeal were restricted to use for the purchase of the mountain.
The Commission became involved in order to advise the charity as to what to do with these restricted funds, which had to be dealt with as funds for a “failed appeal”. A failed appeal occurs where the funds raised cannot be applied for the stated purpose of the appeal. This may be because the funds raised were for a specific charitable purpose, but:
- there were insufficient funds raised to carry out the purpose; or
- the purpose was achieved, and there were funds remaining; or
- the purpose was no longer needed or could not be carried out.
Alternatively, sometimes an appeal fails because it was for the benefit of a charity which has since ceased to exist.
When an appeal fails, the Commission can sometimes make a Scheme to allow the funds raised to be applied cy-près – used for another charitable purpose similar to the purpose stated in the appeal, but which can be fulfilled.
However, where an appeal for a specific charitable purpose fails from the outset, with none of the charitable purpose achieved, as in this case, special rules apply. The donors of the restricted funds cannot be presumed to have been willing to support a wider charitable purpose when making the donation. Therefore, they have a right either to reclaim their donations, or they can agree that the funds can be applied cy-près.
The Friends of Blencathra Ltd decided to treat the donations of all individual donors to the appeal as restricted funds. It took steps to notify all such donors that the purchase had not been successful, and gave the donors three months in which to reclaim their money (less a small administration fee of £6) or disclaim it so that it could be applied cy-près.
The charity returned funds in the sum of just over £166,000 to donors, and a further sum of just over £21,000 was disclaimed. The Commission made a cy-près Scheme to allow the application of a surplus £73,000 to five charities with aims in the areas of conservation, heritage or protecting the environment, and working near or on Blencathra Mountain.
The report published by the Commission shows the risks to charities of making very specific appeals. It is prudent, when a charity is seeking donations to an appeal, to make the appeal for the benefit of the charity's general charitable purposes, as an appeal is less likely to fail if it is phrased broadly in this way.
Alternatively, if a charity really wishes to make an appeal for a very specific purpose, it is crucial to set out in the wording of the appeal a broader secondary purpose for the funds if the appeal should fail.
If a charity uses one or the other of these suggested approaches in the wording of an appeal for funds, it should help the charity to avoid the risk of a costly and time-consuming process of returning funds to donors if the appeal fails.