Ellie Williams, a Charity Solicitor, takes a closer look at a crucial High Court decision.
In the High Court on Friday, a verdict which will have significant implications for the charity sector was delivered.
After a long-standing saga of allegations and questions about how Kids Company was run, Justice Falk handed down a judgement which cleared the former trustees and CEO of the collapsed charity of running an unsustainable business.
This has been a landmark legal case spanning nearly four years and which has been closely monitored by anyone with an interest in the charity sector, with the worry that dedicated and diligent trustees could be pursued in a similar way.
The Official Receiver - a body that looks into potential wrongdoing by company directors - argued that the charity’s trustees and CEO should be disqualified as directors, citing that the charity had been poorly managed and not operated on a proper and financially sustainable basis.
At the judgement on Friday, the founder and former CEO of Kids Company, Camila Batmanghelidjh, and seven former trustees were exonerated.
Set up in 1996, Kids Company became a nationally recognised charity and continued to grow at a substantial rate. The charity was spending around £20m a year, up to a quarter of which came from the government.
Further conversations with government saw a £3m grant agreed in 2015 as part of a charity restructuring plan, conditional on the charity matching the grant using other funding resources.
At virtually the same time as that government grant was received, the charity was subject to accusations of sexual abuse, subsequently established as being unfounded. Shortly after – and before it was exonerated from those abuse allegations - the charity closed its doors.
The Official Receiver alleged that that the business model being operated by Kids Company had become unsustainable from around 2013 and that its demise was inevitable. It alleged that the CEO and trustees should have known this and taken action to avoid that financial collapse.
The Official Receiver asked the court to disqualify Batmanghelidjh as a company director for six years and sought further director bans of between two and a half and four years for five other Kids Company trustees.
The Official Receiver’s case was dismissed by Justice Falk who said: “There was no allegation of dishonesty, bad faith or personal gain… they are not unfit…. While aspects of the charity’s work were high-risk, the business model was not unsustainable.”
Justice Falk also commented that, if it had not been for the unfounded allegations, it is more likely than not that the restructuring would have succeeded, the charity would have survived and that it was reasonable for the directors to believe the charity could continue following the discussions held with the government about funding.
Understandably, the judgement was met with great relief by the former trustees of Kids Company.
A joint statement said: “As the former trustees of Kids Company, we welcome Mrs Justice Falk’s judgement in the High Court clearing us of the charge by the Official Receiver that, in our management of Kids Company, we were unfit to be company directors, concluding that she was wholly satisfied that the disqualification was unproven and unwarranted”.
There is no doubt that this is a verdict the whole charity sector will welcome, not least as it protects the integrity of trustees who, in virtually all cases, display immense dedication, diligence and hard work in their role trying to achieve the best possible outcome for their charity, which, after all, they undertake on a voluntary basis.
Justice Falk specifically commented on Kids Company’s status as a charity and emphasised “the importance of ensuring that able and experienced individuals with the range of skills required by charities are not deterred from becoming charity trustees”.
Hopefully this victory will mean that those good and honest people wishing to become trustees will not be deterred from serving a charity in that role.
