Find me on LinkedInCharity Law Update - February 2021
Our wonderful, diverse charitable sector has been hit hard by the pandemic through the loss of donors and also because charities have been prevented or hampered from meeting needs, for example, care providers, food distributors, learning establishments, museums and galleries and religious organisations have struggled to maintain services by reason of Lockdown restrictions. Adaptation by charities to the use of the internet has assisted to varying degrees and the furlough scheme has provided a “cushion” for some, but not all, employers and employees against the harshness of the lockdown.
Enlisting help from professional advisers can help charities to manage during the Lockdown and over the past year I have advised charities that wished to:
- merge charities or restricted funds
- remove restrictions on expenditure of funds including permanent endowment; if your projects were funded by one of the lottery distributors, don’t forget to obtain their consent before you deal with any assets funded by the lottery distributors
- dispose of land and buildings which are surplus to requirements. Local authorities, which are cash-strapped, are disposing of their land and buildings and some of it is charitable land which means that they cannot use the sale proceeds to meet expenditure incurred on behalf of ratepayers. They sometimes lose sight of this point in the hurry to secure funding!
- Put the terms of a grant into writing – this protects the grant-funder and the recipient!
- Change or simplify their constitutional structure, eg, by incorporating or becoming a CIO
- Improve their governance practices and procedures and update their policies
The Charity Commission, which exists to guide as well as regulate charities, has issued some guidance and a regulatory alert to assist trustees to operate safely during the pandemic – some of which is more useful than others See, for example, Coronavirus (COVID-19) guidance for the charity sector, and the Commission’s 5-minute guides which explain the basics of financial oversight, achieving a charity’s purposes, good decision-making, addressing conflicts of interest and the Commission’s filing requirements. It will come as no surprise that fraudsters have taken advantage of the chaos caused by the pandemic and the Commission has issued an alert about the heightened risk of fraud-related scams.
I have found the Commission to be helpful and patient with the additional delays caused by the Lockdown when I have been applying for an order or scheme for a charity. However, there is no doubt that the Commission’s regulatory role is taking precedence at the moment as you can see from the published regulatory reports which are available to read on the Commission’s website. I have summarised some of them below. Whilst reading them, the reader should have in mind that the three primary duties of trustees are
- to carry out their charitable purposes for the public benefit and observe the other terms of their governing document
- to safeguard the assets and money
- to avoid conflicts of interest
Rigpa Fellowship
Rigpa is an unincorporated charity registered in February 1980. Its purposes are to advance the Buddhist religion and it runs a school in the UK. It is part of a wider international network.
Several students of the charity’s former spiritual leader published a letter on the internet describing accounts of mental, physical and sexual abuse by the leader over several years. The charity engaged solicitors to undertake an investigation into the matter. A report was submitted to the trustees in August 2018. In summary it was found that, on the balance of probabilities, some students of the spiritual leader were subjected to serious physical, sexual and emotional abuse and that senior individuals in the charity who were aware of at least some of the issues, failed to address them, leaving others at risk.
The Charity Commission opened a statutory inquiry. Having considered the solicitors’ report and after meeting with some of the original trustees, the Commission concluded that two of the trustees had knowledge of the abuses that were being carried out but did not regard them as serious and failed to take action.
Having found them to be unfit to be trustees, the Commission disqualified two of them from acting as trustees for a period of eight years each.
In the meantime, the trustees of the charity are implementing the recommendations made in the solicitors’ report in order to safeguard the charity’s beneficiaries.
The Commission’s report on its statutory inquiry made reference to the fact that in 1994 the Commission received similar complaints from beneficiaries of the charity and engaged with the trustees. The Commission said that its records on the earlier complaints and its actions had been destroyed. However, it would seem that the Commission did not take any action or monitor the charity at that time or follow up to see whether the abusive behaviour had ceased.
Commentary
This horrible tale is not unique and exposes the vulnerability of those who are subject to the malign influences of bullies in a position of authority. They may experience permanent damage to their psychological well-being such that they find it difficult to carry on normal lives afterwards. I was involved in giving advice on a similar case in recent times and, as in this case, the trustees were in denial about the abuse and its impact on those who suffered from it. They had taken no legal advice on any aspect of their duties in relation to the administration of the charity or the beneficiaries!
In this case, the trustees appear to have had little regard for their charitable purposes and public benefit. In consequence, some of the students have suffered lasting harm.
Christ Apostolic World Soul Winning and Evangelistic Ministry
The charity is unincorporated and was registered in November 1992. Its purposes are to advance religion and promote charitable work for the benefit of the poor.
The charity owned a building. It borrowed money to repair the roof and defaulted on repayment of the loan. Poor decision-making, chaotic governance, litigation and disappearance of funds, led to the charity losing its land and building. The building was destroyed by fire at some point and the loan company which repossessed the land, sold it for a sum in the region of £1.5 million out of which the debts were paid. There was nothing left for the charity.
The Commission disqualified one of the trustees from being a trustee or holding a senior management position in a charity for a period of 10 years.
Commentary
The trustees failed, whether by act or omission, in their duty to preserve the assets and money of the charity. The report is unclear in some respects, but it would seem that the professional advice which they did receive was inadequate and did not enable the trustees to understand their responsibilities. The management was chaotic and personal egos would appear to have led to some very bad decisions.
I find this case particularly frustrating. If the trustees had sought professional advice, the outcome could have been quite different.
Just West Yorkshire
This is a charitable company registered in October 2007. It was dissolved and removed from the register in January 2020.
Its purposes were to promote good race relations, to eliminate race discrimination and promote equality of opportunity between different racial groups.
The Commission found that there had been misconduct and/or mismanagement at the charity in that the trustees had failed to understand their duty to avoid conflicts of interest and observe the terms of their governing document. In consequence, some unauthorised remuneration was paid to trustees and persons connected to trustees.
The Commission’s report is unclear in material respects. However, it would seem that the trustees commissioned an academic report on behalf of the charity which the Commission felt did not further the charity’s purposes and the charity’s social media activity did not accurately represent the content of the report
Commentary
The Commission’s report is very badly written consisting of innuendo about wrong-doing and political activity but not explaining what the Commission was getting at! This is a pity and a missed opportunity. My main reason for including this report is that I believe strongly that when the Charity Commission is exercising its powers, it does so in a judicial capacity and should make every effort to reflect this in its written reports. It failed to do so on this occasion.
Livingstone House Mother of the Harvest Ministries
This is an unincorporated charity set up in February 2004. Its charitable purposes are the promotion of the Christian faith and to relieve persons who are in need or hardship or who are sick in particular but not exclusively as a result of substance abuse.
The Commission opened a statutory inquiry when “the initial trustees” were serving. During the inquiry the initial trustees resigned and “interim trustees” were appointed who have also since resigned. The charity’s founder is called Trustee A. New trustees have been appointed.
Unauthorised payments in the form of salaries to a trustee were made which continued even after the Commission told the charity that they were unlawful. There was a failure to manage conflicts of interest.
Large sums of money were paid to a company controlled by Trustee A and the charity’s former manager. The company had provided housing for beneficiaries of the charity. The Commission found the failure to manage conflicts of interest to be misconduct and/or mismanagement.
The charity failed on a number of occasions to file accounting information on time and when they were submitted, they did not disclose the related party transactions that had taken place, including the salary payments to Trustee A and the payments to the company.
Large sums of money were also paid into the former manager’s personal bank account rather than to the company which employed him. Overall, the financial transactions between the charity, trustee A, the former manager and the company were muddled.
In breach of the governing document there were an insufficient number of trustees to form a quorum.
The Charity Commission disqualified the former manager from being a charity trustee and from holding an office or employment in a charity with senior management functions for a period of 4 years. Trustee A undertook not to be or to act as a charity trustee or hold office or employment with senior management functions for a 6 year period.
Two further reports were published with similar findings in the cases of The Moss Side and Hulme Community Development Trust and Kenya Community Support. The Charity Commission removed a trustee of Kenya Community Support and, on appeal, the Charity Tribunal confirmed his removal.
Commentary
It is evident from these cases and many others that notwithstanding the significant amount of guidance available on the Charity Commission’s website, trustees are not reading it and they are not seeking advice leading to mistakes being made and, in some cases, more than once in the same charity!
Moira Protani
February 2021
www.moiraprotani.com