Kids Company investigation 'a lesson' to voluntary directors

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The founder and former trustees of the the charity Kids Company face lengthy bans on holding company directorships under an investigation by the Government's Insolvency Service.

Alan Yentob - a former BBC creative director, and Richard Hanover - the former boss of WHSmith, are among nine former directors facing bans of between two-and-a-half years and six years as a result of alleged financial mismanagement. The charity's founder, Camila Batmanghelidjh, who was not a director at the time of Kids Company's demise, is also under investigation as a "de facto director".

The charity, which suffered a high profile and damaging collapse in 2015, had previously claimed to support 36,000 children and young adults including those struggling with mental health issues, who had suffered neglector been involved in gun and gang crime.

It received a total of £42 million of public money over a 15 year period, although some reports have placed that figure as high as £50 million. A report by MPs in February 2016 revealed an "extrodinary catalogue of failures" with trustees accused of ignoring auditors "repeated warnings" about the charity's perilous financial position.

The investigation has been called a 'serious wake-up call' for some directors in the third sector, with the spotlight now turned on the governance of such organisations.

Louise Hebborn, a partner and commercial solicitor at the national law firm Stephensons, said: “The decision by the Insolvency Service to bring disqualifications proceedings against these individuals should serve as a warning to professionals who occupy similar directorships, in similar organisations.

“The risks of becoming a voluntary director of a charitable organisation 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 be ‘unfit’, you could be disqualified from holding the position of director in future, for up to 15 years. This would also affect any directorships you currently hold, outside of the organisation under investigation.

“It is the legal obligation of any director to meet his or her 'director's duties' - for example, to exercise care, skill and diligence and to act in good faith.  This will include taking appropriate measures when a company becomes insolvent, keeping proper accounting records and paying all tax owed by the company.  Whilst a director may employ an accountant or finance manager to control this side of the business, the legal responsibility falls with the directors. 

“Where a company is insolvent and it continues to trade, the directors can become personally liable for the company’s debts as well as face disqualification in the most serious of instances after an investigation by DBERR.  This again reiterates the importance of acting prudently and complying with all directors duties.

“For directors wishing to avoid investigation and disqualification, there can be no substitute for assiduousness, vigilance and caution. Expert legal advice is key in reviewing all relevant documents, financial reports and contracts before agreeing to become a director, voluntary or otherwise.”

“With the increased spotlight being put on those in the charity sector and after a series of high profile investigations by the Charity Commission, this advice has never been more relevant.”