Member Article

We thought the conclusion of a long-delayed inquiry by the Charity Commission into the collapse of the high-profile charity Kids Company would be the last word on this matter, but there may well be another twist...

If you’ve followed what has been happening in the charity sector over the last seven years - or even if you’ve just been reading the news in that time - the chances are you’ll have heard of Kids Company and about its spectacular collapse in 2015.

Forever to be associated with its charismatic and high-profile founder and chief executive, Camilla Batmanghelidjh, and championed by David Cameron’s coalition government as the embodiment of the ‘Big Society’ (before that particular firework fizzled out), we may have thought that last week’s publication of the findings of the long-postponed Charity Commission inquiry into the charity’s demise would draw a definitive line under the case; but perhaps there’s still life in it yet (about which, read on).

After Kids Company stopped operating in August 2015, the BBC reported the Cabinet Office’s estimate that the government would recover just £1.8m of a £3m grant handed to Kids Company in the week before it closed. Two Parliamentary committees quickly set up inquiries to look at why successive governments had continued to fund the charity. Within six months the House of Commons Public Administration and Constitutional Affairs (PACA) Committee had issued its report ‘The collapse of Kids Company: lessons for charity trustees, professional firms, the Charity Commission, and Whitehall’.

As the report’s title indicated, while the charity’s collapse was fresh in the memory, no-one escaped censure. Perhaps because the failure had been so high-profile, the official receiver eventually decided (after spending nearly two years considering the matter) to apply to the High Court for director disqualification orders against serving trustees of Kids Company - as well as Ms Batmanghelidjh, on the basis (it was contended) that she had acted as a de facto company director, making decisions with the board, rather than just reporting to and taking instructions from it.

One trustee decided not to contest the director disqualification proceedings and accepted a disqualification undertaking, but the remaining trustees and Ms Batmanghelidjh contested the application all the way to and through a seven week court hearing during lockdown in late 2020.

Perhaps to the surprise of many, given the scathing comments in the PACA Committee report in the aftermath of the charity’s demise, Mrs Justice Falk not only dismissed the official receiver’s application (the bar for company director disqualification being a high one, requiring “incompetence of a high degree”) but she also made clear her admiration for the trustees, who she considered had done their best in trying circumstances:

She said: The public need no protection from these trustees. On the contrary, this is a group of highly impressive and dedicated individuals who selflessly gave enormous amounts of their time to what was clearly a highly challenging trusteeship.

“I have a great deal of respect for the care and commitment they showed, and the fact that they did not take the much easier path of not getting involved in the first place or walking away when things got difficult.”

This was a significant decision on at least two counts. The judgment vindicated the trustees and restored their reputations, following years of uncertainty when their ability to undertake their day jobs in running non-charitable businesses and institutions had been under threat.

But more generally it was important for the charity sector, bringing relief to all who serve on charity boards or who may be considering becoming a trustee. The judge was alive to considerations of public policy, aware that the sector depends upon a pool of capable individuals with a range of skills who are prepared to take on responsibility without financial reward.

However, the pendulum has now swung yet again, at least to some extent… and for the time being.

The Charity Commission re-opened its suspended inquiry following the High Court judgement in February 2021, and has spent this last year reviewing the evidence; obtaining over 47 hours of witness evidence under oath, examining over 167 boxes of documents, 96 filing cabinets and having access to around 500,000 electronic documents.

While of course bound by the judge’s findings, and concluding that the legal test had not been met for it to commence its own (charity trustee) disqualification proceedings against the trustees and/or the chief executive, nevertheless the commission has found that the charity’s repeated pattern of failing to make payments to HMRC when these were due and failing to make payments to workers on time constituted mismanagement in the administration of the charity and would have undermined confidence in the charity and its management by its trustees.

Evidently this will have been an unwelcome decision for the trustees and Ms Batmanghelidjh, who probably thought the High Court’s judgment, following weeks of their cross-examination under oath, would effectively be the last word on the subject. In recent days Ms Batmanghelidjh has reportedly been considering judicially reviewing the Commission’s finding of mismanagement (albeit the High Court has ruled that she was not ultimately responsible for the operation of the charity because she was not a charity trustee).

It remains to be seen whether Ms Batmanghelidjh would be able to satisfy the High Court that, in finding mismanagement for a repeated failure to pay creditors on time, the commission has made a decision outside the range of reasonable responses available to it as a body subject to public law duties.

Nonetheless, for now the Kids Company story continues – as does the company itself (under company number 03442083), shorn of its charitable status but kept on the register of companies while it remains in liquidation.

While this saga may still have life, there are valuable insights to be gleaned by all charities from the Commission’s decision. The regulator’s statutory functions include encouraging and facilitating the better administration of charities; and to discharge that function it may give such advice or guidance with respect to the administration of charities as it considers appropriate. As it has done in recent years following other high-profile inquiries into charities, the commission has drawn conclusions for the sector as a whole, here inviting “all trustees to consider the wider lessons laid out here in the context of their own charity, to discuss the recommendations, and record (and where appropriate, publish) decisions taken as a result.”

None of these lessons are rocket science but instead constitute long-recognised good governance, brought to life by the tale of this particular charity, led as it was by a group of high-profile, highly competent and well-intentioned trustees.

The Commission’s focus is on the prosaic detail, the 90 percent perspiration to accompany the 10 percent inspiration in making a difference to advance any charity’s purposes, every day.

Read the Charity Commission’s 23-page Inquiry decision here and/or you can register here for either or both of Shoosmiths’ two 30-minute webinars in March, when we will distil the commission’s guidance into practical steps for charities to take, providing delegates with a checklist to help trustees avoid some common pitfalls in the running of their own charities.