Poor governance and self-dealing led to demise of charities

The Charity Commission (‘the commission’) today published a report of its inquiry into Saint Stephen the Great Charitable Trust (registered charity number 1109008) (‘the trust’) and Saint Stephen the Great (registered charity number 1119839) (‘the company’). The trust was registered with the commission on 12 April 2005 and the company was registered on 27 June 2007. The main activities of both charities were to purchase disused churches in order to ensure their future use as churches within the Orthodox Christian faith.

In November 2006 the trust agreed with the Society for Promoting Christian Knowledge (‘SPCK’) that SPCK would transfer 22 Christian bookshops to the trust.

The commission received complaints about the administration of the company and trust and opened a statutory inquiry into both charities on 26 September 2008. It used its legal protective powers to appoint an interim manager to take over the management of the trust, establish its assets, liabilities and creditors, and consider its future viability. This also included dealing with ongoing litigation including 34 redundancy claims made by the shops’ ex-employees, and reaching an agreement with SPCK who believed that the trust had breached the terms of their agreement.

As a direct result of the commission’s intervention by appointing an interim manager, trust assets of £3,226,100 were safeguarded from exposure to significant liabilities. Multiple complex claims totalling £4,171,710 were managed and £1,928,853 was disbursed in settlement of claims. The trust’s charitable objectives were also furthered as sale proceeds of £144,486 from the trust’s church at Bradford were passed to Orthodox communities. The trust’s church at Poole was transferred to another charity so that it could continue to be applied for charitable purposes.

The inquiry’s conclusions based on the interim manager’s findings were that:

  • there were unmanaged conflicts of interest intrinsically linked to the trust’s administration and transactions committing charitable funds to connected entities appeared to constitute self-dealing
  • the company had filed for bankruptcy in the United States and both charities were exposed to substantial financial liabilities as a result of redundancy claims and other issues; the trust could manage the churches’ ongoing operational costs but could not meet the claims from SPCK, ex-shop employees and others
  • the trust had failed to keep proper records since 2008 and there was a failure on the part of the trustees to undertake due diligence before entering into the agreement with SPCK
  • there was poor governance, lack of due diligence and inadequate record keeping on the part of the trust’s trustees and the company’s directors
  • in summary, there had been serious mismanagement and misconduct of the trust’s and company’s trustees .

The interim manager concluded that it was in the trust’s best interest for it to be wound up with surplus assets transferred to charities with similar objects. The trust was consequently removed from the register on 10 March 2014 (see endnote 1).

Michelle Russell, Director of Investigations, Monitoring and Enforcement at the Charity Commission, said:

This has been a long investigation that has been hampered by poor record keeping and complicated by the number of claims and connected party companies and transactions. However, we are pleased to be able to conclude this investigation and ensure that significant charitable funds that were at risk can be used for their original purposes.

This case is a clear reminder for charities of how difficult it can be to manage its business and deal with conflicts of interest properly where there are number of different companies involved in running different aspects of the charity’s activities and there are a number of related and/or conflicted trustees.

Charities should be clear about which body has what role – especially when contractual liabilities are created. Trustee boards should ensure that there are an adequate number of unconflicted trustees who properly scrutinise third party transactions and appropriate policies and procedures which are followed to actively manage any potential situations in which their personal interests could conflict with their duties as trustees.

The full report is available on GOV.UK.