Kids Company update: Charity Commission Inquiry into Kids Company collapse to be reviewed by High Court

The High Court has recently granted permission for Camila Batmanghelidjh, the former CEO of Keeping Kids Company (the Charity - which used the working name Kids Company), to apply for a judicial review of the Charity Commission’s report on its statutory inquiry into the collapse of the Charity.

Background

Kids Company was founded in 1996 and sought to help disadvantaged children and young ex-offenders.  Kids Company was registered as a charity in England and Wales and grew from its first centre in South London to having twelve drop-in centres in London, Bristol and Liverpool and 495 employees, providing a range of services to children by early 2015.

The Charity stated that it supported 36,000 children and that its services included counselling, hot meals at drop-in centres, and assistance with healthcare and housing.

The Charity reportedly received £42 million in government funding over the twenty years in which it was active. The Charity also had a number of high-profile supporters, including JK Rowling, Coldplay and David Cameron.

Issues the charity faced

The charity experienced a rapid collapse in 2015. The CEO of Kids Company first contacted the Charity Commission in February 2015, because the charity was facing issues such as: donor complaints; adverse media coverage about the charity; and senior staff resignations.

The Charity Commission became increasingly concerned that Kids Company’s ongoing insecure financial position – particularly in light of its public profile – was likely to impact negatively on public trust and confidence in the charity and the charitable sector more generally.

The Charity Commission was also notified of financial allegations made against the Charity and so began a financial investigation into the charity. Whilst the Charity Commission were carrying out their inquiry, the police commenced a criminal investigation into Kids Company, following allegations of sexual and physical abuse at the charity (which later concluded with no action being taken).

The trustees of the charity said that adverse media reports connected to the above investigations were causing donation offers to be withdrawn and consequently Kids Company ceased operations on 5 August 2015.

High Court Proceedings

Proceedings were issued by the Official Receiver against Kids Company in the High Court, following the Charity’s collapse[i]. The proceedings were brought to disqualify the trustees and CEO of the Charity, on the basis that they had been running an “unsustainable business model”.

Judgment was handed down by the High Court on 12 February 2021 and the judge found in favour of the directors of the Charity and held that the business model was not unsustainable in principle. The judge also set out that it was more likely than not that the Charity’s restructuring would have succeeded, if the announcement by the police regarding their investigation into allegations of sexual and physical abuse made against the Charity had not been made the same day that the Charity received a £3 million grant from the UK government.

Charity Commission Inquiry Decision

On 20 August 2015 the Charity Commission opened a statutory inquiry (the Inquiry) into the Charity. The Charity Commission published the Inquiry in full on 10 February 2022 (having waited for judgment in the above High Court proceedings to be handed down).

The Inquiry concluded that there was no evidence of dishonesty, bad faith, or inappropriate personal gain in terms of how the trustees had managed the charity. It did, however, find evidence that the trustees had mismanaged the Charity.

Examples of this mismanagement included:

• poor record keeping and destruction of records by staff-members;
• failure to manage the Charity’s finances in a sustainable manner – the Charity’s operating model was deemed to be high risk, relying on grants and not retaining reserve funds;
• good governance failures, such as retaining the same chair of trustees and CEO for a substantial period of time and failing to recognise the importance of appointing new trustees; and
• the Charity had failed to be transparent about the number of beneficiaries whom the Charity was helping and this had caused misconceptions – particularly for donors.

The Inquiry also found that the closure of Kids Company had an impact on the wider charitable sector and had undermined public trust in charities. The Inquiry provided a list of four charity good governance lessons which other charities could draw from the collapse of Kids Company, including:

• the need for a system of checks and balances and ensuring that charity boards are diverse and regularly reviewed;
• that a charity’s operating model should reflect the nature and scale of the charity;
• the importance of proper financial planning and holding reserves; and
• that trustees must have in mind a range of considerations when charities grow.

Application for judicial review of the Inquiry

Following the publication of the Inquiry, Ms Batmanghelidjh made an application in the High Court to apply for judicial review in relation to the Inquiry.  

The judicial review process allows applicants to challenge decisions of public law. Judicial review is usually considered to be a last resort and applicants should explore all alternative remedies before applying for judicial review. In deciding whether to allow an application for judicial review, the court will look at the decisions of public bodies whose decisions have public law consequences. If an application to apply for judicial review is successful, there are four grounds under which the application for judicial review can be made.

In this instance, the Charity Commission is the regulator of charities in England and Wales and is a public body constituted by the Charities Act 2011. Its decisions have consequences of public law.

On 19 December 2022, His Honour Mr Justice Bourn handed down judgment in respect of Ms Batmanghelidjh’s application[ii]. Ms Batmanghelidjh contended that the Inquiry report was unlawful, citing the grounds of lack of proper evidence and alleged bias/predetermination in the report. Mr Justice Bourn concluded that the grounds given for the Inquiry being unlawful were arguable and so gave permission for a judicial review of the Inquiry.

Mr Justice Bourn did however raise that Ms Batmanghelidjh may face “high hurdles” in bringing her claim for judicial review; particularly because the Court will not usually interfere with a decision made by an expert regulator.

In fact, this is the first time that a subject of a Charity Commission inquiry report has sought judicial review of a report’s contents. In his judgment, Mr Justice Bourn said that he would ask the Court to list the judicial review hearing before the end of July 2023, due to the reputational risks involved. It is therefore likely that we will see an outcome to Ms Batmanghelidjh’s application in the coming months.

Conclusion

The Charity Commission published 18 statutory inquiry reports in 2022 and there will be more which are currently pending. Other charities will no doubt be watching carefully for the outcome of the upcoming judicial review of the Inquiry.

The various investigations into Kids Company and the public attention which the Charity’s collapse garnered mean that this case is highly unusual. The High Court’s latest decision to allow Ms Batmanghelidjh to apply for judicial review may also have been affected by the outcome of the High Court proceedings in favour of the directors of the Charity in February 2021 – the outcome of these proceedings being a contrast to the findings of the Inquiry.  It would be interesting to see whether an application for the judicial review of an inquiry which had been more general and less well-publicised would have had the same outcome.

[i] In The Matter of Keeping Kids Company and In the Matter of the Company Directors Disqualification Act 1986 [2021] EWHC 175 (Ch)

[ii] R (Batmanghelidjh) v Charity Commission for England and Wales [2022] EWHC 3261