BCF LEGACY ASSETS

Background

  1. The BCF possesses over £200K of legacy assets in the PIF Trust (c £158,000) and Chess Centre Ltd (c £50K)
  2. At present the BCF/ECF incurs the costs of producing three sets of accounts, ECF, BCF and Chess Centre Ltd. Three sets of tax returns are filed and the BCF is also potentially subject to corporation tax and capital gains tax when assets are sold. The objective of this paper is to set out a road map to simplify the structure and with appropriate safeguards, to transfer funds to the Chess Trust in a tax efficient way while allowing the ECF Board and Council to the greatest extent possible, determine how and when those funds will be deployed. I also want Council to be able to make as informed a decision as possible by laying out the issues and see Finance Council in April 2022 as the right time to decide how to proceed.
  3. It is fundamental to this issue to understand that once assets from the BCF/ECF structure are moved to the Chess Trust (CT), they are controlled by the CT trustees who under charity law must act independently of the ECF.
  4. Chess Centre Ltd accounts can be seen here. There was £31,077 in cash and £30,218 held in investments with net assets after liabilities of £53,976 at 31/8/2020 Its assets have declined in the last couple of years. It undertakes no business activities.
  5. The last valuation of the PIF I am aware of is around £158,000
  6. At the BCF AGM in October 2018 (see https://www.englishchess.org.uk/wp- content/uploads/2018/09/C27.6-Transfer-of-PIF-No-1-Fund-to-the-Chess-Trust.pdf ) it was agreed that the PIF No 1 should be transferred to the Chess Trust, subject to the agreement of the Board of Directors of the ECF. The Board were unable to agree on this, but did agree to transfer a further £70,500 on 18th June 2019 to the Chess Trust with a request that the funds should be utilised over a period of three years to 2020/21 to:
    a) Women’s chess
    b) International development
    c) Appoint a Development Officer

    Items a) and b) were actioned by the Board and funds expended in accordance with the wishes of Council. The ECF Board did not appoint a Development Officer. I have produced a paper on the projects such a Development Officer or Officers might undertake and a year 1 costing here.
  7. On May 2nd 2019 at the behest of BCF Council, ( https://www.englishchess.org.uk/wp- content/uploads/2019/04/C28.5-Finance-Council-report.pdf) £154,381 (Source was the component of the John Robinson bequest for junior chess which was not moved into the John Robinson Youth Trust + Investment gains) was transferred from the PIF to the Chess Trust. This boosted the CT reserves at August 2019 to £806,277 (2018 £680,571)
  8. In financial year to 31/8/2018 the Chess Trust disbursed just £13,262 (https://tinyurl.com/n46ucdpz)
    In financial year to 31/8/2019 the Chess Trust disbursed £37,688 (https://tinyurl.com/sdarj53j)
    In financial year to 31/8/2020 the Chess Trust disbursed £59,951 to projects approved by the CT Trustees, mainly the Accelerator programme and had reserves of £761,496 at year end.
  9. According to the CT accounts to 31/8/2020: ‘the funds of the Trust are largely invested with Smith & Williamson and their market value has decreased by £66,592 in the financial year’. In the previous year the market value increased by £41,463 and to 2018 increased by £22,077.

CT-ECF Relationship

  1. The Trustees of the Chess Trust must act independently of the ECF. The Chess Trust constitution (appended below) provides (Clause 10) for the appointment of a maximum of twelve trustees of whom two are ex officio ECF Board members, up to three can be appointed by the ECF and with up to a further seven being appointed by the existing Trustees. I believe there should be more ECF appointees serving.
  2. It’s important to understand that the PIF assets are not owned by the ECF. They are held in trust for the benefit of the BCF. I am sure many Council members view the PIF assets as the ECF’s ‘backstop’ (I certainly do) so we should reflect carefully before transferring them to a trust external to the ECF in anything other than a managed way. The John Robinson Youth Trust for example, spends only its investment income annually, even though there was no such stipulation from John.
  3. The donation of the remaining PIF assets to a charity will not attract capital gains on the transfer. While this is sensible in principle, I am against it without stronger safeguards to ensure the funds are made available to the ECF to pursue its objectives in so far as these are consistent with the charitable status of the Chess Trust. What seems wrong to me is that large sums of money should sit invested in the Chess Trust when the ECF reserves are not at a level of even 6 months expenditure and when operational budgets for all directorates are squeezed.

Proposals

Delay any transfer to Finance Council

1. I propose that there be a moratorium on any further transfers of ECF/BCF assets to the CT until Finance Council has considered the matter again next April.

Appointment of Trustees

  1. I propose that it be a requirement that before any more funds are transferred to the Chess Trust from the PIF that the ECF Board and Council appoint another CT Trustee as allowed for in the CT constitution. There has been insufficient engagement between the Board and the CT.
  2. Use of BCF/ECF Assets These should be used exclusively for the benefit of English chess and consistent with the ECFs’ objectives such as: British Championships, social and women’s chess, County Championships, ECF’s prison program, Junior coaching, ECF Academy, Development Officer, Junior tournaments, Grand Prix, and of course as an emergency fund should the ECF’s financial position require it and subject to meeting the Chess Trust’s charitable objectives. The PIF and Chess Centre Ltd funds could be put into a separate fund within the Chess Trust called something like the ECF Development Fund in order to distinguish them from the donations received from other sources by the Chess Trust.
  3. I propose that subject to ECF reserves recovering to a satisfactory level, any PIF/Chess Centre funds moved to the CT would be deployed over the medium term unless Council decides otherwise, rather than just invested for the long-term with no clear plan how they will ever be deployed and, potentially available to the Chess Trust trustees to spend on other projects.

BCF/ECF Assets to be restricted income

5. I propose that before any further transfer of funds from the PIF, it must be agreed in writing by the PIF Trustees, Chess Trust Trustees and the ECF Board, how the PIF assets being transferred will be deployed. The transfer document should specify that the funds being transferred to the Chess Trust are ‘restricted funds’ earmarked for specific purposes. In charity accounting, restricted funds can only be spent in accordance with the requests of the donor, in this case the BCF; failure to do this may be a breach of trust. An MOU or letter of recommendation could be such a basis. See below for a sample.

Tidying up

6. The BCF is to be established as a dormant organisation retaining the name and bank account for possible future use. This will remove the requirement to produce annual accounts, conduct an annual audit and file tax returns, saving time and money.

Mechanism for CT to acquire Chess Centre Ltd

A) Chess Centre Ltd can be transferred to the Chess Trust via a BCF Council motion using the mechanism of a stock transfer form. CT will then own the only share. A dividend for all the assets is then paid to the CT. CT directors and CC Ltd Directors then resolve to liquidate CC Ltd.