Charitable organisations that are merging or winding up subsidiary enterprises should carefully consider if this will impact on current bequest distributions.

The recent Victorian case of In Re Estate of Henry Brough Smith[1] stands as an example of how common this issue is becoming in the era of mergers and rationalisations.

In that case the trustee of a charitable trust established in 1969 sought the advice of the Court as to whether successor organisations to the 15 originally named institutions could benefit. Of the 15 named charities in the will, 2 organisations were no longer in existence.  Three continued in existence as initially constituted.  However, the remaining 10 named institutions had each ceased to exist in the form they were in at the date of the will.  The 5 defendant charities claimed to continue the work of these 10 named institutions.

The law holds that a charitable institution may continue to exist, notwithstanding that the machinery through which that institution carries out its charitable purpose has changed through a merger or the like. Where a charitable institution has ceased to exist the prima facie position is that a gift to that institution has lapsed, but there are certain exceptions.

One exception is that if there is in existence another institution which has taken over the work previously carried on by the named institution and which can properly be regarded as the successor of the named institution and if the dominant charitable intention of the testator was wide enough to allow the gift to take effect in favour of the successor institution, then the gift will take effect in favour of the successor institution.

This exception should be considered in merger structuring to preserve as far as possible such bequests through constitutions and merger documentation.

[1] In Re Estate of Henry Brough Smith; Perpetual Trustee Company Ltd v Uniting (Victoria and Tasmania) Ltd & Ors [2020] VSC 378