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Latest News
24th March 2021
One year on…
What are the key issues facing Charities?
We are now a year on from the outbreak of the COVID-19 Pandemic, which has had such a huge impact on the charity sector. Income generation has been hit, many charities are seeing an increase in demand for their services (whilst at the same time working in a different way) and trustees are needing to be more engaged than ever.
As we prepare to begin a period of what we hope is normality what are some of the key legal, governance and financial issues that charities are going to be facing?
Join TC Group and H3 Solicitors for 2 webinars where these issues will be discussed.
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The Charity Commission has issued three individual trustees, from The Bersam Trust, with official warnings after they put the charity at ‘undue risk’ by borrowing £1.9m in inadequately documented loans.
The Bersam Trust’s objects include “providing Jewish Children with a strictly orthodox Jewish religious education”. They pursued this object by leasing a building to an independent Orthodox Jewish faith school and helping support some of their costs.
The Commission opened the enquiry in January 2019, due to concerns about the financial arrangements and governance of the charity. They found that over a four-year period the charity received 56 loans totalling £2.4m. They found that 49 of these loans, accounting for £1.9m, were not documented in a loan agreement. These loans were borrowed by trustees on behalf of the charity often only with an oral agreement. “Whilst there is no evidence money that was lost by the charity in this way”, the Charity Commission says that this exposed the charity to “significant and unnecessary risk”.
The Commission also found that the charity was failing to reflect the school and itself as separate organisations. For example, one loan was secured on the basis that the school received a good Ofsted report, which the Charity has no control over, and which would have led to a significant financial loss had the school not delivered.
Other actions that led to the warning included failure to manage conflicts of interests and to follow an action plan to address previous failings that the Commission had identified.
Amy Spiller, Head of the Investigation said, “the trustees of the Bersam Trust failed to ensure [good governance] and indeed, through their lack of financial management and basic governance, agreed a significant number of undocumented loans that risked their charity’s future”.
The Official Receiver was appointed to wind up the charity in 2015 after a Safeguarding allegation made the charity collapse in the summer. Just before its collapse the charity had received a restructuring Grant of £3m from the government but they failed to secure match-funding.
Two years later the Official Receiver would begin disqualification proceedings against the charity. They argued that the trustees as directors, and the chief executive as a de-facto director, should be disqualified on the grounds that they were running an “unsustainable business model”, in particular over the period of September 2013 until its closure in August 2015
The case was heard this year and the judgement was handed down by Justice Falk. The court rules that the business was not “unsustainable in principle” though some parts were “high risk”
Falk said, “Kids Company grew substantially between 2012 and 2014” and “as at the 30th of November 2014, the second of the dates relied on by the Official Receiver, the directors reasonably believed that additional funding could be obtained from the government”
She also said that the charity’s restructuring plan could have been successful, if not for the accusations of sexual abuse being publicised on the same day that they received the government grant. The charity was later exonerated by the police. Falk said, “if not for these unfounded allegations… the charity would have survived”.
The judgement also concluded that Camila Batmanghelidjh, the chief executive and founder of Kids Company, was not a de-facto director. All of the trustees and Camila Batmanghelidjh were cleared of the accusations.
Kids Company has already been the subject of a parliamentary inquiry. The Public Administration and Constitutional Affairs Committee blamed trustees, ministers, and the Charity Commission for an “extraordinary catalogue of failures”. In response to this the government committed to greater scrutiny before awarding grants in the future.
The Charity Commission opened a statutory inquiry into what happened in 2015 but has not yet released its findings, as the work of the Insolvency Service takes precedence.
Attached here is a link to the full case if you wish to read further.
The Public Accounts Committee, which is made up of sixteen MPs, has issued a call for evidence on the matter of how the Charity Commission is spending the emergency Covid fund for charities. This comes after charities have repeatedly claimed that the funds have been distributed too slowly.
“The Committee will question senior officials at … the Charity Commission on how well the funding has been distributed and whether it is achieving its objectives”.
In November 2020 after the publishing of a blog on responsible investment it was identified that there were some technical and practical issues that trustees considered barrier to investing.In particular charities felt as though the commissions guidance on ‘Charities and investment matters’ was failing to give them confidence and assurance that responsible investment was something they could consider.
In response the this the Commission has revised this area and plan the release a draft guide for consultation in spring 2021 supported by a refreshed interpretation of the law in this area. The final updated guidance is though to be published in summer 2021.
