The high profile collapse of Kids Company in 2015 has been used as the classic example of ‘unfit’ trustees’ mismanagement of a charity leading to its financial failure. Proceedings were brought against the trustees together with the chief executive, seeking to disqualify each of them from being ‘directors’ (or trustees). However, earlier this month the High Court dismissed these claims, leaving the former trustees exonerated.
It is fair to say that, following a particularly damning report from the Public Administration and Constitutional Affairs Committee into the practices of the trustees and a ‘trial by media’ proclaiming that the trustees were responsible for the collapse of the government-funded charity, the High Court’s findings were initially met with some surprise.
The judgment of Mrs Justice Falk acknowledges that:
“…to someone whose familiarity with Kids Company might have been gleaned from press reports, the conclusion that I have reached might appear to be a surprising one. However, I make my findings based on all the evidence I have read and heard over the course of a lengthy trial.”
Mrs Justice Falk praises the trustees, describing them as 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.”
The judgment went further to allege that the charity may not have failed but for allegations of sexual abuse, which were later found to be unsubstantiated. Mrs Justice Falk sets out how the trustees appropriately managed the finances of the charity, including taking and following professional advice where required, in very difficult circumstances including the withdrawal of government funding.
Read the full judgment here.
Aside from the helpful reminder that the media may ‘sensationalise’ cases like this for headlines, the judgment offers some useful reminders for any trustees, directors and board members of organisations (including charitable organisations).
Trustees of charities will be aware of the legal duties and responsibilities placed on them through virtue of the control and oversight of a charity’s operations. Much of the time these duties are framed as, when carried out properly, ensuring that a successful and well-run organisation prevails; however, the High Court’s findings also demonstrate how charity trustees can fulfil their duties even if a charity eventually fails.
Trustees should take assurance from the findings and the fact that the court confirmed its benevolent approach towards charity trustees, within the context of directors’ disqualification proceedings. However, trustees should also be mindful of their legal duties and responsibilities and how these can be discharged in the face of both good and bad operating environments for charities.
The impact of the pandemic on charities makes this case all the more pertinent as the sector grapples with severe financial blows. The role of trustees who are, in the main, also volunteers has never been more important. The judgment confirmed that individuals should not be dissuaded from becoming or remaining charity trustees and 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 also worth noting that the chief executive was found not to be a ‘de facto’ director. This determination was, in part, aided by a clear corporate governance structure within Kids Company which meant that the court concluded that the chief executive, whilst operating under significant delegated authorities, was at all times subject to the board’s supervision. This point is a useful reminder that all boards will delegate certain decisions and/or responsibilities to staff and committees etc; however, these should always be clearly set out in writing and reviewed regularly. Boards should consider the extent and appropriateness of delegated authorities at frequent intervals, assessing if they continue to be suitable for the organisation.
Trustees’ legal duties and responsibilities are wide-ranging; having an awareness of the duties and responsibilities that they need to observe is really important for individuals considering or holding the role of trustee, not only to give them the confidence that they are complying with the relevant legal requirements but also to enable them to carry out their role in a way that best serves their organisation. Trustees are expected to take reasonable steps to find out about legal and regulatory requirements and keep up to date - this includes scheduling and attending relevant training sessions.