Fundraising and Failed Appeals

What Is a Failed Appeal?

A failed appeal occurs when funds are raised but some or all of those funds cannot be applied for the purpose set out in the fundraising appeal.

Two common types of failed appeal are where:

• you do not raise enough funds for the planned project to proceed
• you raise more than is needed and it is unclear how the additional funds will be applied

Other examples of failed appeals include where the appeal was for a specific purpose that is no longer needed and where you intended to benefit a charity that has ceased to exist.

What Should Charity Trustees Do in the Event of a Failed Appeal?

Elements of the legal regime governing failed appeals have very recently been updated by the Charities Act 2022. The regime differs depending on whether the appeal fails from the outset and the purpose of the appeal cannot be achieved (initial failure) or at a later stage (a subsequent failure).

Initial Failure

If insufficient funds were raised, the appeal is said to have failed. In this case of initial failure, the starting position is that the funds must be returned in full to donors who can be identified, unless they disclaim the gift. The Charity Commission publishes regulations which set out the form of the disclaimer and also the way donors are to be traced: writing to them using donor records and also publishing advertisements for donors to come forward. Some donors may remain unidentifiable after this process, some are always presumed unidentifiable, such as those who have given cash in collection boxes.

The Current Rules

The current rules are not often used, in part because they are not straightforward. Charity trustees can apply to the Charity Commission for a scheme to allow them to use for different purposes the funds raised from donors who disclaim or who cannot be identified. Even after required steps have been taken to identify them and for six months after the scheme has been made, donors who can identify themselves can still reclaim their donation.

The New Rules

The new rules introduced by the Charities Act 2022 are due to be implemented with effect from Autumn 2022. Once they take effect, the process will be simplified. The trustees will be able to apply the funds for new purposes without a Charity Commission scheme. Where the fund is over £1000 the Commission's consent will be needed to make the relevant resolution, for smaller funds, this will not be needed. Before they can use this power, the trustees need to demonstrate that either:

• the fund is comprised of a single gift of £120 or less
• the property is given by a donor who, after the agreed actions are taken, is not identified or is not found - the agreed actions are agreed in writing between the trustees and the Commission as being reasonable in all the circumstances of the case to identify and find donors
• the fund is comprised of property given by donors who are deemed automatically unidentifiable, for example proceeds of cash collections in collecting boxes

Donors will no longer have a six-month period to reclaim their funds once the trustees power to apply funds in this way has been exercised.

Subsequent Failure

If surplus funds have been raised, there is enough and more to carry out the purpose. That means it hasn't 'failed' in the same way as in the case of insufficient funds. As a result, different, often simpler rules enable the surplus to be used for different purposes. Depending on the size of the fund, the trustees either exercise a power in the Charities Act 2011, or apply to the Commission for a scheme to change the purposes of the surplus funds.

If the funds do not exceed £1,000, the Charities Act 2022 simplifies this element of the regime even more, (if certain requirements are met) by allowing trustees to resolve to change the purposes of the surplus funds without Commission consent.

Avoiding Failed Appeals

All the difficulties that arise in this area can be avoided if trustees think about and explain in their fund-raising literature what will happen if their appeal raises insufficient, or surplus, funds. As the Law Commission has observed:

There should be greater awareness in the charity sector of the need to prepare fundraising literature carefully and to pre-empt the possibility of a failure or surplus. That is all the more important with the increasing popularity of crowdfunding and other online fundraising campaigns for specific purposes."

For more information on fundraising or advice on failed appeals, please contact Shivaji Shiva in our Charities team on 07788 313 298, or complete the form below.