Camilla Batmanghelidjh, the founder and former CEO of Kids Company, and the charity’s former trustees saw the case brought against them dismissed in the High Court last week, following a 10-week trial.
Kids Company went into insolvent liquidation in 2015, with the Official Receiver seeking to disqualify the defendants from acting as directors or being involved in the management of a company, arguing that they were ‘unfit to be concerned in the management of a company”.
However, last week’s ruling cleared Camila Batmanghelidjh and the seven others (Alan Yentob, Richard Handover, Francesca Robinson, Jane Tyler, Andrew Webster, Erica Bolton, Vincent O’Brien) of personal wrongdoing.
The Official Receiver had alleged that the defendants had caused or allowed the charity to operate an unsustainable business model. They alleged that the charity’s business model had been unsustainable without material change from 2013, and that by the end of November 2014 failure was “inevitable without immediate material change”, and that the defendants knew or ought to have known this.
In her ruling Mrs Justice Falk said that it was important to note that:
“There was no allegation of dishonesty, bad faith, inappropriate personal gain or any other want of probity against any of the defendants. It is also important to note that there was no allegation of inappropriate expenditure in respect of any of the individual children or young people assisted by Kids Company.”
Mrs Justice Falk said that the allegation was not made out against any of the directors, and they were not unfit, and that in the case of Camila Batmanghelidjh, it did not find that she had been a de facto director at time, and that therefore it was not necessary to decide whether she was unfit, But, had this decision had to be made, a disqualification order would not have been made against her.
The court found that while aspects of Kids Company’s operating model were high risk, it was not “unsustainable” in principle. The charity had experienced significant cash flow difficulties during the period in question with costs accrued broadly evenly over the year, but income from donations heavily seasonal so increasing the risk of cash flow problems. Discussion had been held on how to change its funding model to enable it to scale up to meet demand for its services, with the charity recognising that it could not continue to do this under the existing funding model and a plan agreed with the government.
The charity however was forced to close in 2015 following sexual assault allegations. Kids Company was exonerated following a police investigation, but by then it was too late. Mrs Justice Falk’s decision concludes that, if it had not been for the unfounded allegations, it is more likely than not that the restructuring would have succeeded and the charity would have survived.
In a statement, the Kids Company former trustees said:
“As the former trustees of Kids Company, we welcome Mrs Justice Falk’s judgment 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.
“Mrs Justice Falk said that the purpose of her jurisdiction is to protect the public and went on to say: “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.”
Kids Company was forced to close in August 2015 following what the judge records as “unfounded allegations” of child abuse, which made fund-raising from private and government sources impossible.
“We are pleased that finally the facts have been gathered and assessed in a court of law, and that Mrs Justice Falk has exonerated both the former trustees and Kids Company CEO, Camila Batmanghelidjh.”
Bates Wells advised five of the former trustees. The firm commented:
“We are delighted with the total vindication of our clients by this judgment. The Court has rightly found that they acted responsibly and would be a credit to the board of any charity. They are “highly impressive and dedicated individuals” whose good work has been recognised and reputations preserved.
“By contrast, the Official Receiver’s conduct and ill-conceived claim have been harshly exposed.
“It is shocking that a case with profound implications for the charity sector should have been brought on such flimsy grounds, wasting millions of pounds of taxpayers’ money and causing years of unnecessary anguish to the defendants. Dedicated service by charity trustees must never again be repaid by such gross injustice.
“We hope that this victory will ease anxiety in the charity sector and that good people will not be deterred from serving as charity trustees.”
Law firm Maurice Turnor Gardner LLP, which represented one of the former trustees, welcomed Mrs Justice Falk’s judgment, with Jennifer Emms, MTG Partner Elect who led the legal team, saying:
“Of course there will be enormous relief from the defendants and other charities, that after a careful and detailed 10 week trial, the judgment gives a clear ruling on the single point about the sustainability of the charity’s business model.
“There was never any allegation of dishonesty; or inappropriate spending or behaviour towards any beneficiaries. For this reason one might question if it was appropriate for such an onerous case to be brought in the first place against volunteer trustees who acted for the charity in their spare time and were entirely unpaid. Running a charity is not easy. The trustees of this charity, like many others, had to make difficult decisions. Thankfully, the judge could see that the trustees brought a wealth of experience and good judgment to the board and acted reasonably throughout.”
Also commenting on the judgment, Rosalind Oakley, Chief Executive of the Association of Chairs said:
“We are concerned that despite the trustees being cleared, the publicity surrounding this case may still deter people from joining trustee boards or for boards themselves to become excessively risk averse.
“Kids Company was in many ways an atypical charity with an unusual funding model. Nonetheless, in our view, the case offers important lessons for good governance and board practice. We will be studying the judgment and discussing the implications with our members.”
ICSA: The Chartered Governance Institute also welcomed the verdict, and highlighted that the 221-page verdict contained important lessons for all those involved in the governance of charities, underscoring the importance of good governance: of effective oversight, training, assurance and risk management.
Peter Swabey, Policy and Research Director at the Institute commented:
“The decision to throw out disqualification measures is probably a happier outcome for the sector as a whole as it doesn’t challenge the underlying principles of trusteeship. But, charities do need to be alert to charges of de facto directors for CEOs.
“If a charity believes an executive trustee would enable the charity to better deliver its charitable objects then the pros and cons should be clearly laid out by the governance professional, along with workable arrangements to ensure that the organisation adopts the approach which is best suited to achieving its objects. This should be regularly reviewed and changed if it isn’t delivering.
“Having clear, robust and effective governance arrangements in place is a well-practiced way of limiting the risks of the CEO (or another) being seen as a de facto director, such as having formal, approved minutes of meetings, clear processes of decision making and delegation to the CEO and others and having regular board meetings without the CEO (or other person) present. Importantly, it also means having skilled, independently minded trustees (who are fully informed of their legal duties and liabilities) and have had adequate induction and training.
“We would encourage large charities to undertake an external board review and publicly report key findings and actions. We would also encourage charities to follow the Charity Governance Code as this would be the quickest way of raising governance standards. Additionally, charities of a certain size and complexity should appoint a suitably qualified and experienced governance professional to lead on governance.”
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