The high profile collapse of the charity Kids Company in 2015 threw its charismatic CEO, Camila Batmanghelidjh, and its trustees into the public spotlight, leading to a parliamentary enquiry, a lengthy investigation by the Insolvency Service, and disqualification proceedings.
Keeping Kids Company (Kids Company) was a large charity established in 1996 in London which subsequently branched out into Bristol and Liverpool, providing support to disadvantaged and vulnerable young people. The charity was set up as a company limited by guarantee and was therefore subject to both the Companies Act and Charities Act.
Kids Company had grown significantly in its final few years, being a demand-led model of “self referral” and had a policy of “never turning a child in need away”. Turnover increased each year: from £11m in 2008, £14m in 2010, £20m in 2012 and £23m in 2013. In 2012, Kids Company began its expansion into Bristol, having been strongly encouraged by the government to replicate the London offering. The level of need in Bristol was much higher than had been anticipated when the contract was negotiated, with board minutes noting “it was discovered that the young people there had been significantly more traumatised than anticipated”.
In July 2015, Kids Company agreed a restructuring plan, under which the CEO stepped down to an ambassador role, a Chief Restructuring Officer was appointed and the company was given a grant of £3m, allowing staff to be paid.
On the same day the grant was received, and in the aftermath of the Jimmy Savile abuse scandal, Kids Company was notified of a Metropolitan Police investigation into allegations of serious criminal behaviour, including sexual assault and rape. The police felt obliged to investigate them in detail, though their detailed investigation (which went on until January 2016) was ultimately dropped without any failings by the charity in its safeguarding duties having been identified.
Within weeks the trustees concluded that, with the uncertainty caused by the commencement of the investigation, its likely impact on donations and the government grant, the restructuring would not be able to proceed and Kids Company would have to close. On 20 August 2015 a winding up order was made on the petition of the directors, on the basis that the company was unable to pay its debts.
Following a two year investigation, the Official Receiver brought director disqualification proceedings under the Company Directors Disqualification Act 1986 against the 8 de jure directors (each trustees of the charity) and the Chief Executive Officer, Camila Batmanghelidjh, claiming she was a de facto director.
Mrs Justice Falk handed down her 220 page judgment in February, reported here: The Official Receiver v Batmanghelidjh & others  EWHC 175 (Ch). The court declined to make any disqualification orders, with the judge highly critical of the case as presented.
We consider the key aspects and the lessons learned from the failed proceedings in our article here; and in our article here we reflect on the factors relevant to determining whether individuals are regarded as directors for the purposes of director duties and disqualification.
For more information on this article or connected issues, contact our Restructuring & Insolvency Team.