Question about liabilities when a club folds

[F2Andy]

We are looking to revise our club rules. One issue raised is about liability if the club folds. There is no reason to think this is about to happen, and we have a fund to cover foreseeable expenses, but what happens if there are outstanding debts?

 

Is it usual for the rules to say liabilities will be shared by all members equally?

 

Or is there a way to limit the liabilities to the funds the club has so members are not liable? Obviously, if we were a company we can do that, but my suspicion is that that would involve other expenses.

 

A couple of members have said they would not be prepared to be members if they are potentially liable for unlimited amounts (say if someone gets injured, we are sued and the insurance company wriggles out of it). Has anyone got any advice? Any experiences or suggestions that might be helpful?

[Moxy]

Yes, you can set up a company limited by guarantee where the member's liability is limited to a nominal amount (usually £1).  the club's officers become directors of the limited company.  There is paperwork to file (naturally!) but I don't think it is much more than you would produce for your current AGM.

 

Both the 009 Society & the 7mm Narrow Gauge Association are so constituted, if you search them on Companies House https://www.gov.uk/get-information-about-a-company

that will give you an idea of the paperwork involved.  I think other railway societies may also have done this to protect their members.

 

I have no personal experience of doing this, but it seems a small effort for the considerable degree of protection it offers members.

 

 

[009 micro modeller]

1 hour ago, Moxy said:

Both the 009 Society & the 7mm Narrow Gauge Association are so constituted, if you search them on Companies House https://www.gov.uk/get-information-about-a-company

that will give you an idea of the paperwork involved.  I think other railway societies may also have done this to protect their members.

 

As an 009 Society Member, I remember several years ago when the Society was converted to a company limited by guarantee, though not having taken that much interest at the time I’m not entirely clear what form it was converted from. I can’t quite remember the reasoning behind this but I think part of it was to remove the issue of people being personally liable for large costs. I’m pretty sure that in the Society’s case, as you say a very small nominal contribution from each member (I think £1 or possibly £2) is required, and even then only in the very unlikely event that the Society folds and the company is wound up.

[laurenceb]

As I understand it a model railway club ( society) is a members group where any liability is spilt between the membership ie all members equally with no limit. This is dating back to when the Gauge 0 Guild moved to being a limited company so things might have changed in the meantime

[009 micro modeller]

11 minutes ago, laurenceb said:

As I understand it a model railway club ( society) is a members group where any liability is spilt between the membership ie all members equally with no limit. This is dating back to when the Gauge 0 Guild moved to being a limited company so things might have changed in the meantime

 

Is that different to a company limited by guarantee though (I’m not absolutely sure)? The 009 Society did it relatively recently (within the last decade) but I didn’t follow the full details of it. I just remember that the wording specifies a nominal, very small liability but does give a maximum amount (‘not more than...’ if I remember correctly).

 

This may be relevant or useful: https://www.resourcecentre.org.uk/information/legal-structures-for-community-and-voluntary-groups/

 

I’d still be interested to know what structure the various groups that have done this previously used.

Edited September 21, 2021 by 009 micro modeller

[laurenceb]

As far as I know all the societies are limited by guarantee. Sorry, missed that bit out

[john new]

49 minutes ago, laurenceb said:

As I understand it a model railway club ( society) is a members group where any liability is spilt between the membership ie all members equally with no limit. This is dating back to when the Gauge 0 Guild moved to being a limited company so things might have changed in the meantime

Agree and why the SLS recently became a CLG after 100 years as a club. Without such protection club officers and individuals become collectively liable and this could be large, sudden and unexpected if, god forbid, something occurs outside your insurance cover and big £ compensation arises. Also a club as an unincorporated body cannot, legally, undertake several forms of contract. No one expects  these things to happen, they don’t often, but who wants to be one of the few that does get caught.

 

Yes more work as a CLG to ensure compliance with the Companies House legislation and rules but I would not have agreed to be a Director, as below, if the bodies were not CLGs.
 

The other option is one of the charitable status routes (the SLS looked but didn’t pursue this route) but requires the group doing something that the Charity Commissioner's accept is charitable. 
 

Edited September 21, 2021 by john new
Clarity

[john new]

6 hours ago, F2Andy said:

We are looking to revise our club rules. One issue raised is about liability if the club folds. There is no reason to think this is about to happen, and we have a fund to cover foreseeable expenses, but what happens if there are outstanding debts?

 

Is it usual for the rules to say liabilities will be shared by all members equally?

 

Or is there a way to limit the liabilities to the funds the club has so members are not liable? Obviously, if we were a company we can do that, but my suspicion is that that would involve other expenses.

 

A couple of members have said they would not be prepared to be members if they are potentially liable for unlimited amounts (say if someone gets injured, we are sued and the insurance company wriggles out of it). Has anyone got any advice? Any experiences or suggestions that might be helpful?

You also need to have consideration of where assets go in the opposite scenario where the club is financially solid but runs out of active members or is small and otherwise open to “carpet baggers”.

 

Edited September 21, 2021 by john new
Better wording

[Michael Hodgson]

Most clubs are unincorporated associations.  That is they are just collections of individuals.

They do not have legal personality, which means that cannot sue or be sued, although individual members can.

They cannot form a contract, they act through their officers/committee, who would be liable for debts they incurred.

Rules of the club might enable other members to be held liable to each other.

 

Forming a company limited by guarantee offers some protection to the officers of the club, as they are directors of the company.  However they could still be pursued for things like fraud. 

[john new]

14 hours ago, Michael Hodgson said:

Most clubs are unincorporated associations.  That is they are just collections of individuals.

They do not have legal personality, which means that cannot sue or be sued, although individual members can.

They cannot form a contract, they act through their officers/committee, who would be liable for debts they incurred.

Rules of the club might enable other members to be held liable to each other.

 

Forming a company limited by guarantee offers some protection to the officers of the club, as they are directors of the company.  However they could still be pursued for things like fraud. 

 

Which unfortunately does happen although the reported instances are fortunately rare.

 

Edited September 22, 2021 by john new