Hi Jonty,
Thanks for responding, think I need to try and make sure that we understand the position (and that said I can be wrong so I hope other contributors will point out where this is so).
Jonty wrote:Basically what happens is that the Club provides grants to the Trust to undertake services on its behalf but for perceived financial reasons dresses them up as loans. I think I now understand this issue and thanks for your help.
I must apologise as it is clear that I haven't managed to set out the situation clearly enough.
Jonty wrote:It seems to me that although the "loan" to the Trust may technically be a "loan" it is actually more like a grant. The rate of interest charged is not a commercial rate but more akin to a "peppercorn". As far as I'm aware the repayments don't include capital repayments and there is no term specified as to when the loan should be repaid.
So, in effect, calling it a loan may be technically correct but it is misleading and it certainly has not been provided at a commercial rate of interest.
As you have said the reason for doing this was that the Club "choose to put it in the accounts as a loan so that if there was ever a need the Club could get the money back out of the Trust..."
Where or not the strategm of dressing up what is essentially a grant as a loan would offer this possibility is another matter. How could the Club get its money back when the Trust has no money?
The "Club" does lend the "Trust" funds which show in the accounts as loans and are in fact loans. You are quite right that there is no formal repayment date and the interest rate is nominal. Whilst the "Trust" many not have cash, it has assets that could be turned into cash - National Office. It could raise a mortgage on the offices of do a leaseback deal where it sells the freehold for cash and takes out a lease on agreed terms so that it can continue to use the building.
Probably the best way to think of this is as a family. If you were rich and had a son who wanted to buy a house who could afford the mortgage but did not have the finances to furnish it, you might well choose to lend him sufficient money to do the furnishing at a nominal rate of interest and without formal agreement as to repayment. You would want to leave it as a loan so that the funds would be available for your wife who you think might outlive you and to save complications with gift/inheritance tax. It would still be a loan and in extremis you could demand repayment from your son and expect him to take out a second mortgage to do this.
As an alternative you could keep your money in the Bank and your son could borrow more from the Bank on an unsecured Personal Loan. You would get a peanut rate of interest on your money and the Bank would charge your son quite a high rate of interest. By trusting each other and keeping it in the family you save a lot of money.
The "Club" does make grants/subventions/donations - however you want to describe it which cannot be reclaimed from the "Trust" once made.
I attempted to explain it with this "the cost of management and membership services supplied to the Club by the Trust was £1,290K. Basically this was for all of the activities that were carried out that would have been within the traditional remit of the CTC before formation of the Trust. All but 4 of the staff are employed by the Trust and the Offices are owned by the Trust, so you can see that very little happens under the auspices of the original CTC. The services provided by the Trust include administration, I.T., the website, campaigning, information, volunteer support, media relations, marketing and fund raising.
These cost are covered by a direct charge to the "Club" of £407K, which is the figure for services which are not covered by the current charitable objectives of the Trust. Any costs that can be deemed within the charitable objects of the Trust are left with it. The balance of £883K is met by the subvention (some refer to it as a donation) from the Club to the Trust of £453K together with the funds generated by the Trust of £430K".
Whilst with the present governance arrangement I don't believe that the "Club" could avoid responsibility for the "Trust" it would be possible over time and acting in what the law would regard as a "reasonable" way to separate the two entities. As commented in the "My Opinion" topic by Simon L6, it would be possible to have an alternative strategy.
Simon L6 wrote:..... In fact, wouldn't we be better off retrieving all the money that we've lent the Trust (setting aside the £1.4M building we gave them) and sending them on their way to enter in to as cosy a relationship as they like with government while we do the stuff we do best.....
Bearing in mind that the "Club" has a fiduciary responsibility for the "Trust" this would take several years and great care would have to be taken to ensure that the "Trust" was not disadvantaged. However by then all the "contracts" Simon L6 is so concerned about will probably be history and we will still want IMHO to carry on all the other activities of the "Trust".
I believe we can do all the things that are set out in our objectives in the M&AA as a charity and that it is simply perverse not to do so. We are effectively already running as a charity to all intents and purposes without taking all the benefits.
Jonty wrote:I take your point that from a financial point of view the issue is largely irrelevant as for financial purposes the Club and the Trust are treated as one entity in the consolidated accounts. But surely you can see how misunderstandings and mistrust can arise if something which is more like a grant is described as a loan and if an interest rate of 0.5% is described as a commercial rate of interest which it clearly is not?
Re. the commercial rate, I must apologise, I did not have correct information.
Regards,
John