The founder and trustees of the collapsed charity Kids Company will not be disqualified from further directors’ roles, after a judge cleared them of allegations of serious incompetence.
The ruling is a boost to non-executive directors and trustees, and likely to ease fears that they faced widening legal liability for their organisations’ failings.
In a judgment on Friday, Mrs Justice Falk warned that disqualifying Kids Company’s former directors — including the BBC producer Alan Yentob — could deter talented individuals from joining charity boards.
She said that she had “a great deal of respect for the care and commitment [that Kids Company’s trustees] showed in highly challenging circumstances,” and praised “the enormous dedication” of the charity’s founder, Camila Batmanghelidjh.
Kids Company, which provided counselling, meals and other support to children in London and Bristol, was one of Britain’s best-known charities tackling social deprivation.
It received at least £46m in public funds over its 19-year history, aided by the support of David Cameron when he was prime minister and current cabinet ministers Michael Gove and Matt Hancock. It also received donations from celebrities such as the band Coldplay.
But after several journalistic exposés, it fell into liquidation in 2015. The Insolvency Service said in 2017 that it would seek to bar its directors and chief executive for up to six years.
The Insolvency Service argued that the directors had allowed Kids Company to operate an unsustainable business model, including by adopting a policy of “never turning a child in need away” — even when the charity was dependent on ad hoc grants — and by failing to build up reserves.
However, Falk found that, because the directors received several supportive messages from Cameron’s government, they were not unreasonable in expecting additional government funding.
Falk concluded that Kids Company would probably have survived had it not been for sexual assault allegations made public in 2015, after a government bailout was agreed. The police exonerated the charity of the allegations.
While building up cash reserves would have been “desirable”, it was not “a legal requirement”, Falk said. Donors wanted their money actively to benefit the children, whose needs were “increasing year-on-year” following the 2008/9 financial crisis, rather than to be held in reserve.
The judgment contrasts with a highly-critical report by the House of Commons public administration committee in 2016. The Charity Commission is yet to publish its own report.
Kids Company’s collapse led to calls for stronger regulation of charities, and for more training for trustees.
William Shawcross, then chair of the Charity Commission, complained in 2015 that too many trustees “rely on their passion for the cause, without fully understanding their duties”.
The defendants facing disqualification were Yentob; Batmanghelidjh; Erica Bolton, a PR consultant; Richard Handover, former chief executive of retailer WHSmith; Vincent O’Brien, former chairman of the British Venture Capital Association; Francesca Robinson, executive chair of recruiter PSD Group; Jane Tyler, a solicitor; and Andrew Webster, an executive at retailer DFS Group in Hong Kong.
Batmanghelidjh was not a de facto director of Kids Company, Falk ruled — and even if she had been, there would not have been grounds for disqualification. One other former trustee, Sunetra Atkinson, now known as Sunetra Sastry, did not contest the case and accepted a disqualification undertaking.
Batmanghelidjh told the court she had learning difficulties, which make it difficult for her to read spreadsheets. The judge concluded she was “resistant to change”, which made cutting costs at Kids Company difficult.