As you may have heard, Kids Company’s trustees and chief executive have been cleared of running an unsustainable business by the High Court. After a long investigation, the Official Receiver commenced proceedings against all of the (recent) directors, together with the CEO, seeking to disqualify each of them under s.6 Company Directors Disqualification Act 1986.
Kids Company had lived a hand-to-mouth existence for years. In 2015 it came under intense media scrutiny before collapsing in the summer, in the wake of safeguarding allegations. It had just received a £3m restructuring grant from the government but failed to secure match-funding from philanthropists.
The Official Receiver had argued that trustees as directors, and its chief executive as a de-facto director should have been disqualified on the grounds that they were running an “unsustainable business model”, in particular over the period September 2013 until closure in August 2015. However, the court ruled that although parts of Kids Company’s business were “high risk” and recognised that it had cash flow struggles, it was not “unsustainable in principle”.
The court ruled that that the charity’s restructuring plan, put together over the course of 2015, could have worked if allegations of sexual abuse had not been “publicised” the same day that it received a £3m grant from the government to assist the restructure. The police later exonerated the charity.
The court added 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”. The court said that the decision had taken account of Kids Company’s charity status and “the importance of ensuring that able and experienced individuals with the range of skills required by charities are not deterred from becoming charity trustees”. The judgment also concludes that Camila Batmanghelidjh, chief executive and founder of Kids Company, was not a de facto director.
It has been reported that the Charity Commission consequently will be taking no further investigative action into the charity. It is expected that they will however be seeking to learn lessons from this case, which they will share with other charities and their trustees in an effort to avoid any similar set of events happening again.
For more information about the items raised in this article please contact a member of our Charities, Education & Social Enterprise team.