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  1. Wealth
March 12, 2021

What charities and trustees can learn from Kids Company

By Spear's

As Kids Company demonstrates, trusteeship is a role that comes with significant duties as well as rewards, writes Jennifer Emms

Kids Company has, intermittently, been under press scrutiny for a number of years. Now is the time to shine a spotlight on the important High Court judgment relating to this charity. I led the legal team for one of the individuals exonerated and believe that all those involved in charities, thinking of becoming a trustee or setting up a new charity should take heed of the judge’s words of wisdom.

Kids Company was a children’s charity founded in 1996, which went into insolvent liquidation in August 2015. The Official Receiver (who collects in assets, pays creditors and investigates the reasons for insolvency) brought a court action against those who managed the charity.

These were the charity’s directors, sometimes also known as ‘trustees’, who were volunteers that took on this unpaid role in their spare time. The Official Receiver sought to disqualify these individuals from acting as directors for a number of years. This would affect not only their ability to take on other charity roles but also their livelihoods and commercial careers.

What sometimes gets lost in the noise around this case is that there were no allegations whatsoever of inappropriate spending of charity funds or dishonesty or bad faith. In very basic terms, the sole allegation was that the charity’s business model was unsustainable. The same model that numerous charities rely upon.

The judge concluded that a disqualification of the trustees was ‘wholly unwarranted’. This was a huge relief for the individual trustees who had sought to do their best and had to make difficult decisions, in real-time, about delivering critical services to vulnerable beneficiaries.

Existing charity trustees nationwide must be breathing a collective sigh of relief.

Importantly the case has reaffirmed the traditional structure of large charities with staff: that trustees set strategy and carry out a supervisory role and are able to rely on staff members (like the CEO) for the day-to-day running and third party professionals, like accountants.

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This is very reassuring for many trustees who are often juggling their role with full-time jobs and other commitments. The judgment also provided reassurance about common features of charities, such as the ability for beneficiaries to come forward to the charity for assistance, for charities to rely on donations (which are not a guaranteed funding stream) and to spend charity money based on legitimate expectations of funding.

The Kids Company trustees had committees and a board that met frequently. The case is a stark reminder that charities should check their processes and keep them under constant review.

This includes good governance (are decisions made in the right place, (what are the reporting lines?), record-keeping (if it isn’t written down, it didn’t happen!) and fully appreciating the risks to the organisation, such as safeguarding and reputational risks and the appropriate level of reserves and its achievability.

For those who are thinking of becoming a trustee, this case should give pause for thought. It was a very gruelling experience for the trustees involved: a long and public process. Due diligence of your chosen charity is key to understand all the aforementioned points (and more) upfront before committing to a role.

Trusteeships can be incredibly time-consuming, particularly if the charity gets into difficulty, and so it is advisable to pick an inspiring cause that you feel passionate about.

For those thinking of setting up a charity, it is common for founders and/or their family, friends or advisors to act as trustees. This should be an appropriate juncture to consider whether setting up a wholly new organisation is the best route: are there existing charities that you could support instead (financially and with your vision), or could you make a gift to a Donor Advised Fund (the umbrella organisation of which is a charity in its own right) to make appropriate grants taking into account your wishes?

Setting up a new charity can be the right answer but be properly advised in this step. As Kids Company demonstrates, trusteeship is a role that comes with significant duties as well as rewards.

Jennifer Emms from leading private wealth law firm Maurice Turnor Gardner LLP led her team representing an individual in the high profile Kids Company trial

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