Why Charity Trustees Face Unseen Hazards

Potential disqualification for Kids Company directors shows charity trustees must be aware of their liabilities.

The secretary of state's decision to bring disqualification proceedings against the former leaders of Kids Company is feeding hope that long-term governance concerns around charities that are also companies may attract deserved attention.

Nine former directors of the charity, who are also trustees, are facing possible bans from running or controlling companies for two-and-a-half to six years, following an investigation by the Insolvency Service.

Also targeted for possible disqualification is Camila Batmanghelidjh, the founder of the charity and former chief executive, who is accused by the government of being a 'de facto director', despite not sitting on the board.

The proceedings will be brought under the Companies Act and insolvency legislation, despite the fact that under the Charities (Protection and Social Investments) Act 2016 the Charities Commission has enhanced powers to disqualify trustees for mismanagement rather than simply for a breach of trust.

“In short, you can be held directly accountable where financial failings by the organisation are exposed”

Stephen Bubb, the chief executive of Charity Futures, which advocates for charity governance, told Governance and Compliance: 'It does serve as a welcome warning to trustees of charities that they have responsibilities and they need to take the job seriously.

'If you take on a charity role, you have to read the [board] papers, turn up to meetings and so on. It is right that people realise they have important responsibilities.'

Similar liability

The Kids Company case flags the fact that charity trustees can face similar liabilities to those of company directors.

Louise Hebborn, partner and commercial solicitor at law firm Stephensons, said: 'The risks of becoming a voluntary director of a charitable organisation that is also a company limited by guarantee are very much the same as becoming a director of a PLC or limited company.

'In short, you can be held directly accountable where financial failings by the organisation are exposed.

'And should investigation deem your conduct as a director to have been “unfit”, you could be disqualified from holding the position of director for up to 15 years. This would also affect any directorships you currently hold outside the organisation under investigation.'

Disqualification as a director will also disqualify a person from acting in...