The Sikh Channel Community Broadcasting Company: key lessons from the Charity Commission Inquiry

Key findings from the enquiry highlight trustee conduct, financial mismanagement, and regulatory responses such as the appointment of interim managers and the eventual asset transfer to a Community Interest Company.

The case serves as a reminder of the importance of transparency, robust governance, and legal compliance in maintaining trust and regulatory standing in the charity sector.

Findings of the Charity Commission Inquiry

Governance and conflicts of interest
The inquiry revealed serious governance issues at the Charity. Mr X, a former trustee and qualified solicitor, self-appointed himself as CEO with a £40,000 salary, which breached charity rules. More troublingly, the entire trustee board consisted of Mr X’s close relatives, creating significant conflicts of interest. Even after resigning from his trustee position, Mr X continued to exert de facto control over the Charity, undermining the independence of the board and demonstrating a lack of effective governance oversight.

Unauthorised payments and private benefit
The inquiry found evidence of poor financial controls and failure to manage conflicts of interest. Mr X’s salary, along with additional unauthorised payments, created a clear private benefit for him, breaching charity law. Additionally, the Charity’s subsidiary, where Mr X was the sole director, owed large sums to the Charity with little justification or oversight. These lapses in financial governance raised concerns about the Charity’s ability to manage funds effectively and safeguard donor contributions.

Failures in due diligence and fundraising practices
The Charity also faltered in its fundraising practices. A partnership with an external organisation lacked adequate due diligence, and a fundraising appeal misled donors by failing to disclose that 40% of funds would be retained for administrative costs. The inquiry also found no evidence of proper monitoring or audit trails for transferred funds, highlighting significant gaps in financial oversight and transparency.

Poor statutory compliance
Finally, the Charity was found to have consistently failed to file its annual returns and accounts on time, breaching legal obligations under the Charities Act 2011. These failures compounded the Charity’s governance issues and exposed it to regulatory action.

Regulatory action and outcomes 

Asset transfer to SCCIC

The transfer of assets to a Community Interest Company (CIC) marked a significant shift for the Charity, which is now in the process of dissolution. This raises important questions about the motivations behind the move, particularly as the Charity has transitioned from being regulated by the Charity Commission to being overseen by the CIC Regulator. While the reasons for this shift remain unclear, it reflects a context where trustees may have considered a CIC structure as an alternative, possibly due to perceived reduced regulatory oversight or greater operational flexibility.

In general, when contemplating a restructure, trustees should explore whether remaining under charity regulation or opting for a 'lighter touch' approach with a CIC is more suitable for the Charity’s specific needs. It's crucial that such a shift is legally justified, with full transparency and disclosure to donors and regulators. Donors, in particular, may have expectations about how their contributions are managed, and restructuring could have implications for their trust and ongoing support.

The appointment of interim managers

Another key element of the inquiry was the Charity Commission's appointment of interim managers (IMs) under section 76(3)(g) of the Charities Act 2011, triggered by serious governance failures. The IMs were tasked with safeguarding the Charity’s assets and ensuring proper oversight during the investigation.

The appointment of an IM is not a decision taken lightly; it signals deep concerns over governance and a charity’s ability to self-manage. According to the statutory test, the Commission may appoint an IM if it is satisfied that:

• mismanagement or misconduct has occurred in the administration of the charity; or
• it is necessary or desirable to act to either protect the property of the charity, or ensure that the charity’s property is used properly for its charitable purposes.

The inquiry revealed significant mismanagement, including conflicts of interest, unauthorised payments, and poor financial controls. These failures triggered concerns about protecting the Charity’s assets and ensuring their proper use for charitable purposes. The Commission determined that appointing IMs was necessary to safeguard the Charity's property and restore effective oversight.

The appointment of the IMs was appealed. The Tribunal determined that the legal test for appointing an interim manager was met, as the inquiry was ongoing, and mismanagement had been identified. However, the Tribunal decided against appointing the IMs. Instead, it considered that appointing additional trustees to strengthen the existing board would be sufficient, enabling proper oversight without external intervention.

This outcome is significant because it reflects the Charity Commission's increasing willingness to intervene decisively when serious governance issues arise. It also demonstrates that proactive governance reform by trustees can restore regulatory confidence and potentially avoid external intervention. By the time of the hearing, the Charity was able to demonstrate that appointing the IMs would have been disproportionate, as it had already taken substantial steps to address the issues at hand.

For organisations with complex structures or ongoing governance challenges, demonstrating effective self-management can be easier if trustees take proactive steps to strengthen their governance. In this case, given the nature of the Charity, the trustees might have been better positioned if they had sought additional support or brought in new trustees earlier on. Strengthening the board with independent expertise and oversight could have shown the Charity Commission that the Charity was committed to reform and capable of managing without the need for IMs.

Key takeaways for trustees

• Asset transfers and CICs: While transferring charity assets to a CIC may be appropriate in certain circumstances, trustees must ensure such decisions are legally justifiable, in the best interest of the charity, and fully disclosed to donors and regulators. Legal advice is essential when considering asset transfers or restructuring.
• Interim managers: The appointment of an interim manager should be seen as a warning sign of serious governance issues. Trustees should act quickly to address regulatory concerns and seek legal advice at the first sign of trouble to avoid escalating matters.
• Proactive governance: The Charity Commission is increasingly willing to intervene when governance failures are identified. Trustees must ensure their charity has strong governance practices in place, regularly reviewing financial oversight and conflict-of-interest policies to prevent issues from arising.
• Regulatory compliance: Compliance with statutory obligations, such as filing annual returns and accounts on time, is a basic yet critical responsibility for trustees. Failure to meet these obligations can lead to serious regulatory consequences, including the appointment of interim managers.

For more information, please contact Layal Temrawi in our Charities team on 07340 633 328, or complete the form below.