Closing or Merging a Charity: The Insurance Checklist

When a board starts asking whether its organisation should merge with another, hand its work to a larger charity, or close, the focus is understandably on people, services and assets. Insurance tends to be handled last, often by cancelling every policy on the day the doors close. That is usually the most expensive way to do it.

This guide covers what Charities Services requires when a charity winds up or deregisters, and the insurance decisions that should sit alongside those steps.

What Charities Services Requires

Charities Services' guidance on winding up a charity, updated in June 2026, says a registered charity can choose to wind up at any time. Before it does, it should pay its outstanding debts and liabilities, collect money owed to it, and follow any wind-up clause in its governing document. Remaining assets such as investments, cash or land "must be distributed in accordance with the governing document and used only for charitable purposes", and can be transferred to another registered charity if the governing document allows. The charity must notify Charities Services and apply to deregister, update the Companies Office if it is incorporated, and contact Inland Revenue about its tax position.

The companion page on deregistration sets out the consequences. A deregistered charity generally becomes liable for income tax unless another exemption applies, and may owe a one-off tax on accumulated assets held at the date of deregistration. To avoid that, within 12 months it must either distribute those assets to another registered charity or for charitable purposes, or reregister. It may also lose the ability to issue donation receipts and lose funders that only support registered charities.

A charity that is changing its legal structure rather than closing, for example moving from a trust to an incorporated society, can keep its registration number by updating its details and providing its new governing document.

Claims Do Not Stop When the Charity Does

The most important insurance point is that liability for past activity outlives the organisation. A complaint about a counselling session, a building that was not maintained, or a decision the board made years earlier can surface long after the charity has stopped operating.

Trustee liability, professional indemnity and employment practices policies are usually written on a claims-made basis. They respond to claims first made during the policy period, not to the work done during it. If those policies are cancelled when the charity closes, a later claim about earlier activity has nothing to respond to. Run-off cover, sometimes called an extended reporting period, keeps the policy able to accept claims about past activity for a set period after operations end. It is generally arranged before the policy lapses, so the decision belongs on the wind-up plan, not after it.

Former trustees have a direct interest in this. They are the people most likely to be named in a later claim, and once the charity has distributed its assets there may be no organisation left to fund their defence.

Insure Assets on Their Real Timeline

Assets do not disappear on the day services stop. Buildings stay standing until they are sold or transferred, vehicles stay on the road until disposal, and leased premises carry obligations until the lease ends. Property, motor and public liability cover should run until each asset has actually left the charity's hands, not until the last service was delivered. A vacant building can also trigger conditions in a property policy, so tell the insurer if premises will be empty for any length of time.

Wind-up is also a period of elevated fidelity risk. Assets are being sold, accounts closed and money moved to other charities, often by a shrinking group of people with less oversight than usual. Keeping fidelity or crime cover in place until the final distribution is made, and requiring two signatories for every transfer, is a sensible precaution.

Records and Personal Information

A closing charity still holds personal information about clients, donors, staff and volunteers, and the Privacy Act 2020 continues to apply to it. Decide early who will hold the records after closure, how long they need to be kept, and how anything no longer needed will be securely destroyed. If records are transferred to a successor charity, make sure the people concerned would reasonably expect that, and document the transfer. Cyber cover that is cancelled before the records are dealt with leaves a gap at an awkward moment.

Merging Is Different

In a merger, one organisation usually continues and takes on the activities, staff and sometimes the liabilities of the other. The continuing organisation's insurers need to know what it is taking on before the merger completes. Two questions matter most. First, does the continuing organisation's trustee liability and professional indemnity cover respond to claims about work the other organisation did before the merger? Many policies limit cover for earlier acts unless that is specifically agreed. Second, has the departing organisation arranged run-off on its own policies to protect its outgoing trustees? Both answers should be in writing before the merger date.

Incorporated Societies That Missed Reregistration

Some organisations are facing these questions involuntarily. According to the Companies Office's guidance on recent law changes affecting incorporated societies, any society that did not reregister by 5 April 2026 has been removed from the register. Restoration is possible on application before 6 April 2032. Our article on what happens after the reregistration deadline covers that process.

A Wind-Up Insurance Checklist

List every policy and mark which are claims-made. Decide on run-off for each claims-made policy, record the decision in the minutes, and arrange it before the policy lapses. Keep property, motor and public liability in place until each asset or obligation is actually gone. Maintain fidelity cover until the final distribution. Agree who will hold records and personal information after closure. If merging, confirm in writing how the continuing organisation's policies treat the other organisation's past activities.

Talk to Someone Who Has Done This Before

Run-off periods and merger arrangements are technical, and the decisions are hard to reverse once policies lapse. charityinsurance.co.nz passes enquiries to Registered Financial Service Providers who place cover for not-for-profit organisations. Get a Quote and a specialist will be in touch within one business day.

Sources: Charities Services, Winding up a charity and Deregistration; Companies Office, How recent law changes affect incorporated societies. Checked 10 October 2026.