CIC Association

Serving Community Enterprise

It may seem strange - a CIC Director has informed me that they are going through the process of closing a very successful CIC, migrating the contracted workload to their LTD because the surplus is part of their CIC asset lock. 

My statement to them was simple my business with them won't move to the new LTD. 

They can voluntarily close the CIC. The Locked assets will go to the the designated community cause but all future operations and goodwill follows the directors. 

Personally I struggle with this because it shows that main aim was to create a viable business without risk. Now successful the directors realise the profit margins are substanial. 

Sorry dashed this off if any spelling errors. 

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Hmm, the value of the contracts constitute a transfer of asset so that would have to be priced into the amount to go to their designated community.

They should not be operating for the betterment of another organisation, obviously very technical so would advise the discuss with Regulator before making any moves.

They would have to price and sell the business at not less than market rates so the successful contracts and margins would result in a correct value going to the community of interest.

They should be aware they would make themselves liable if they dont follow the correct procedures and act in good faith

Do keep me up to date, have had a few of these pop up over the last year.

Hi John - it appears that the advise was given at the start of the CIC and that this would be an approved route for development.

Did your examples come from the same region of the country? Or is this just consultants not knowing what they are talking about? 

It concerns me as sadly this isn't the only example I have come across, however most have followed up on the reference information and gotten legal advice before doing anything. 

I will let you know about any new occurances. 

IE: Just passing the existing surplus to their community of interest and not the value of the contracts would be a contravention of their duties as Directors and make them personally liable. Caution!

I know but they have been advised that this is the way forward for them. 

Also the point about the value of the contracts is lost on them, as the contract can't novate either I think that it is just a matter of repeating the points and encouraging them to look closely at who is giving them advise. Solicitors and Accountants would know better - so I think it must be a business consultant.

My interest in working with them is to help them realise that if the CIC is so successful it should be sustained. If they choose to close it down then I have provided the appropriate reference points and the details of the regulator. 

Transparency is critical

Indeed, I think a detailed letter from them into the CIC Regulator would be best.

Cant see how they would be advised that was an appropriate route, its very clear in technical guidance about the asset lock. However, being a CIC and not a LTD is probably how they got market penetration and success in the first place

Company House law covers much of it, directors obligations for acting in best interest, conflict of interest etc.......so not sure how being a CIC would confuse an adviser. No soft transfers, simple as that

Hi John - I know but it appears from discussing with them how they were set up in the first place the original directors were split on the best structure. The two that wanted the CIC structure became annoyed with how things were run and resigned. So the existing directors thought the CIC was just like a Ltd company. 

Yes the market penetration was the primary motive wanting quick way into voluntary and social funding. But the trading side took off - the rest is history. 

After a few long exchanges the CIC will remain and more directors from their community will be appointed. The advisor is clear he never suggested the process the directors wanted to follow and he would have reported them to a number of regulators if they had embarked on the process. So I think this may have resolved itself. 

However there are other strange ideas about the voluntary winding up of a CIC which I will post in the next few months. 

The brutal truth is some individuals have used the CIC to create a marketplace and generate the client base so they can compete with it once they resign as directors. 

Thanks for the comments John - Mark  

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