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Directors Disqualification Case in a Charity Context

February 17, 2021 | Articles
Directors Disqualification Case in a Charity Context

On 12th February 2021, Mrs Justice Falk handed down her judgment in Re Keeping Kids Company (Official Receiver v Sunetra Atkinson & others) [2021] EWHC 175 (Ch).

Facts: Kids Company, a well-known children’s charity, entered insolvent liquidation in 2015. After a long investigation, the Official Receiver commenced proceedings against all of the (recent) directors, together with the CEO, seeking to disqualify each of them under s.6 Company Directors Disqualification Act 1986.

Charitable context: The Official Receiver argued that Kids Company’s status as a charity was ultimately irrelevant: it operated as a company and was therefore required to comply with company law.

Falk J considered that the courts have long taken a benevolent approach towards charity trustees in circumstances where was no dishonesty or wilful misconduct is alleged:

“There are good reasons of public policy for this approach. It reflects the real risk that any other approach would deter individuals who would otherwise be well suited to becoming charity trustees from doing so. It also reflects the court’s recognition of the public service that charity trustees provide.” [848] 

The Judge referred to Stanway v Attorney General?(unreported) 5 April 2000, where the Vice Chancellor said (in the context of whether or not proceedings should be brought against charity trustees under s.32 Charities Act 1993):

“I do think that individuals who have given long periods of their time to unpaid public service – and that is what becoming a trustee of a charity involves – do deserve to have their efforts recognised by not being sued for mismanagement unless the proposed action against them is one which anyone can see cannot be resisted.” 

Conclusions: Falk J reach the following conclusions, in finding that a disqualification order was not warranted against any of the Trustees, or the CEO:

The charity sector depends on there being capable individuals, with a range of different skills, who are prepared to take on trusteeship roles. Most charities would, I would think, be delighted to have available to them individuals with the abilities and experience, that the Trustees in this case possess.

It is vital that the actions of public bodies do not have the effect of dissuading able and experienced individuals from becoming or remaining charity trustees. Disqualification proceedings, or the perceived risk of them, based on wide ranging but unclear allegations of incompetence, rather than any want of probity, carry a high risk of having just that effect, and great caution is therefore required.

The result of proceedings being brought, in other than the clearest of cases, is likely to be to deter many talented individuals, who take the trouble to understand and appreciate the risks, either from charitable trusteeship at all.[911]

The public need no protection from the Trustees. On the contrary, I have a great deal of respect for the care and commitment they showed in highly challenging circumstances.[912]

The CEO was not a de facto director. If I am wrong about that then I would still not have made a disqualification order against her, taking all the circumstances into account and on the basis of the allegation or allegations made against her.[913]

Broader context: The Court has confirmed its benevolent approach to charity trustees, within the context of directors disqualification proceedings.

Further, the Judge questioned whether the Official Receiver had a proper understanding of the operation of charities.

Importantly, Falk J felt that enforcement by the Charity Commission (which has its own powers in relation to trustee disqualification: s.181A Charities Act 2011) would, generally, be preferable.

Practice Areas: Charity

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