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The Kids Company Director Disqualification Proceedings - What Should Charity Trustees Know?

on Friday, 19 February 2021.

The eagerly anticipated decision of Mrs Justice Falk, which was handed down on 12 February 2021, confirmed that the trustees and CEO of the charity, Kids Company, would not be disqualified from acting as directors.

In a judgment that will be welcomed by charity trustees across England, Mrs Justice Falk made a particular point to mention the invaluable work that trustees do for charities, often on a voluntary basis, recognising that, "the charity sector depends on there being capable individuals, with a range of different skills, who are prepared to take on trusteeship roles. … It is vital that the actions of public bodies do not have the effect of dissuading able and experienced individuals from becoming or remaining charity trustees".

After a detailed review of the role played by the founder and former CEO of Kids Company, Camila Batmanghelidjh, and the way in which she was managed by the charity trustees, Mrs Justice Falk also concluded that "the CEO was not a de facto director. If I am wrong about that then I would still not have made a disqualification order against her".

These conclusions will go some way to reassuring those who feared that directors' disqualification proceedings in this high profile case would deter people from becoming charity trustees. The reaffirmation of the Court's reluctance to penalise charity trustees acting in a voluntary capacity where there is no suggestion of dishonesty or "any want of probity" is very welcome.

Many in the sector will also welcome the suggestion that the Charity Commission should be the regulator dealing with cases such as this one: "the primary means of regulating trustees’ behaviour, at least in practice, is and should be via the standards set by, and the enforcement powers of, the Charity Commission, being the regulator that has the most appropriate expertise. At the least, this might in practice reduce the risk of charity trustees being held to inappropriately different standards depending on whether the charity in question happens to be incorporated".

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The case is a controversial one, which has been the subject of several official reports and a torrent of commentary. No doubt the debate - within and beyond the charity sector - will continue.

Questions prompted by the judgment include, in no particular order:

  • Why did the Insolvency Service apparently fail to fully appreciate the role charity trustees play in a charitable company and in particular that most charities have wholly non-executive boards?
  • Given Mrs Justice Falk's recognition of the impressive skills and experience of the trustees of Kids Company, is it time to review any assumptions you may have made about the causes of the charity's failure?
  • Would the result have been different if the Official Receiver's application had not focused on a single unclear allegation linked to the failure to operate a sustainable business model?
  • What, if any, impact will the decision have on the Insolvency Service's readiness to bring disqualification proceedings where charitable companies or charitable incorporated organisations fail?
  • Should regulatory action in such cases be led by the Charity Commission rather than the Insolvency Service?
  • How relevant is the example of Kids Company to the vast majority of charities which do not enjoy the same level of public profile, access to ministerial patronage, or income?
  • Does this case say more about the government's approach to charities than it does about the governance of Kids Company?
  • How can you set the right balance between the volunteer trustees and the chief executive who runs the charity from day to day?

The judgment also revealed that, as with all charities, there were areas in which the governance arrangements of the charity could have been improved. Whether or not you participate in the wider debates referred to above, the decision provides a reminder to review the governance of your organisation and perhaps ask two further questions:

  • Have you got the 'nuts and bolts' of good governance in place?
  • Is there more that you can do to fine tune the governance of your charity - a subtle, multi-faceted, and never ending process.

For more information on charity governance, please contact Shivaji Shiva in our Charity Law team on 07788 313 298.

For more information on insolvency and charities, please contact Ambuja Bose in our Insolvency team on 07469 850 886.

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