The Kids Company case: practical points for students' union trustees
What can charities learn from the high profile collapse of the Kids Company?
Few cases involving a charity have been as widely reported, not only by the charity sector press but also the wider media, as that involving the collapse of the well-known charity, Kids Company, in 2015, with its connections to high profile figures and organisations in the media and politics. The case impacts the whole of the charity sector, including students’ unions (SUs).
Six years after the charity went into administration, the High Court issued its decision in February this year in response to the claim brought by the Official Receiver that the trustees and CEO of Kids Company were unfit to be concerned in the management of a company and should be disqualified from being able to hold directorships. Mrs Justice Falk dismissed the allegations, finding that their conduct did not make them unfit to be involved with the management of a company. In the judgment, unfitness was defined as incompetence to a high degree, provided there is no allegation of dishonesty.
The case and 225-page judgment raised several practical learning points for how SU trustees can protect themselves, particularly given the high turnover on SU trustee boards due to the presence of sabbatical and student officers. Knowledge may not always be passed on to successor trustees and there may be a lack of corporate memory, which can lead to inefficiencies and reduced productivity on the board. This can be mitigated to some extent by having continuity amongst senior staff such as the Chief Executive Officer, but underlines the importance of good record keeping, sharing know-how with, and offering training to, incoming trustees so that corporate memory is not lost each summer when trustees change.
The charitable context
Kids Company, like many SUs, was a charitable company limited by guarantee. Its volunteer trustees were therefore both trustees for the purposes of charity law and company directors under company law. The court confirmed that trustees of charitable companies are subject to the same duties as directors of other types of companies, however the charitable context should not be disregarded, making a clear distinction between charitable and non-charitable companies. This means that a finding of unfitness in a commercial company director does not automatically lead to the same conclusion in a charitable company and this therefore potentially provides SU trustees with a greater degree of protection. However, in no way does this reduce the need for SU trustees to comply with their legal duties as charity trustees and (where applicable) as company directors. They must always be able to demonstrate that they acted in what they reasonably consider to be the best interests of the SU.
The role of the CEO
The judgment also analysed the role of the Kids Company CEO, Camila Batmangelidjh. Ms Batmangelidjh was not a trustee but she did attend trustee board meetings, made recommendations to the trustees and was critical to the functioning of Kids Company, entering transactions on its behalf. The Official Receiver alleged that this made her a de-facto director and contended she was on an equal footing with the trustees, making her susceptible to the allegation of being unfit to be concerned with the management of a company. An SU may well also have a CEO who wields significant influence and is at risk of becoming a de-facto director, particularly in the context of a frequently changing trustee board.
The court found that Ms Batmangelidjh did wield significant influence but was not part of the ultimate decision-making structure, providing reassurance to trustees of their power to delegate authority to executive management. SUs should therefore ensure that senior staff, even those that enjoy substantial delegated authority, are subject to the trustees’ supervision. It is also a good idea for SUs to have a clear scheme of delegation, as well as decision making protocols that are regularly reviewed. At meetings, it is important to distinguish between those “present” i.e. the trustees at trustees’ meetings, who have a vote at the meeting, and those “in attendance” e.g. non-trustee staff members and advisers, who do not have a vote. This should also be clearly minuted.
Trustees must be aware of the need for clarity in decision making and for decisions to be justifiable and should ensure a record is kept of all decisions and reasons for them.
Kids Company kept thorough and comprehensive records, providing evidence going back years for when decisions were taken and why. This stood them in good stead when confronted by the Official Receivers’ allegations.
The judgment suggests that in the event of an allegation, the conduct of the trustee, as much as their skills and experience will be considered by the court. The court also noted that charity trustees have a wide discretion in how to advance their charity’s purposes but this requires balancing against the demands of an increasingly regulated sector. Furthermore, the court examined the actions of each individual trustee, not the collective group, emphasising that trustees have to take responsibility for their own actions and involvement. Where there are trustees who are regularly unable to attend trustees’ meetings, it may be in everyone’s best interests for them to step down to make way for someone who is able to attend more regularly.
Overall, the court emphasised that charity trusteeships remain very much in the public interest and in light of the above, SU trustees should be reassured that if they act honestly and in the best interests of the SU, their position will be upheld.
What action should you take in light of this judgment?
In our experience, SUs are generally excellent at providing trustees with regular training on their duties and responsibilities. Nonetheless, this case is a reminder that SUs should ensure that each new individual trustee, whether a sabbatical officer, student or external trustee, is made aware of the significance of the duties attached to their role and has an understanding of how these duties operate both in theory and practice. Charity trustees should also personally ensure they familiarise themselves with the extensive guidance the Charity Commission has published on trustee duties and responsibilities. Where significant or unusual decisions are being taken, it would be wise for trustees to consider whether professional advice is needed.
We can help with providing trustee training to your SU board. Please get in touch to discuss your requirements.
If you would like to discuss any aspect of this article further, please contact Daniel Lewis or any other member of the charities team on 0113 244 6100.
You can also keep up to date by following Wrigleys charities team on Twitter here
The information in this article is necessarily of a general nature. Specific advice should be sought for specific situations. If you have any queries or need any legal advice please feel free to contact Wrigleys Solicitors