Bath Holiday Trust

Registered Charity No. 1005460

This is a statement of results of an inquiry under section 8 of the Charities Act 1993 as amended by the Charities Act 2006 (“the Act”) and published on 25 June 2008.

The Charity

1. Bath Holiday Trust (“the Charity”) was registered as a charity on 31st October 1991.  It was governed by a Trust Deed (dated 7th October 1991).  The objects of the Charity were, ‘to relieve physically handicapped persons in particular by way of provision of holiday accommodation or respite for such persons and their carers’.  The Charity operated in Bath and North Somerset and the main area of benefit was Bath.

2. The income of the Charity in the year ending 19th October 2001 was £6,191 (the last year that accounts were submitted to the Commission) although it received a legacy for £202,500 in February 1996 and a subsequent payment of £24,400 in July 1998.

Source of Concern

3. In August 2002, the Commission received an anonymous complaint about the Charity. This included:

• various allegations about the suitability of the charity trustees and the operation of a shop operating for the benefit of the Charity (“the Shop”);
• that the accounts of the Charity had been falsified so that the income was kept under the £10,000 limit over which accounts have to be submitted to the Commission; and
• that the two trustees had personally benefited as a result of their roles within the charity.

Commission inquiry

4. The Commission identified a number of concerns regarding the level of recent charitable activity and the management of the Charity by the above two trustees.  On 12th March 2003, an Inquiry was opened under section 8 of the Act. Subsequently in May 2004, the Commission appointed a Receiver and Manager (now called Interim Manager) to administer and manager the charity and to complete a review of the Charity’s finances.  On completion of that work, further work needed to be carried out which required specific legal expertise; therefore it was necessary to appoint a second Interim Manager in October 2006 to specially undertake this legal work which involved managing a claim for restitution of funds.

Issues

5. The aim of the Inquiry was to investigate:

• the level of charitable expenditure;
• the relationship between the Charity and the Shop;
• the relationship between the Charity and a graphic design company (“the Company”) of which two of the trustees were directors;
• the rationale for a number of loans a) from the Charity to the Company, b) from the Charity to the Shop, and c) outstanding loans from the period 1991-1998 from the Company to the Shop;
• the suitability of the individuals to be trustees;
• whether charitable funds had been properly accounted for;
• whether the accounts fully disclosed the extent of the Charity’s operations; and
• whether the Charity had a viable future.

Timescale of inquiry

6. The Inquiry was opened on 12 March 2003 and concluded on 31 March 2008, and the second Interim Manager was discharged on 1 May 2008.  The reasons for the length of the Inquiry were due to the extent of the work that had to be carried out by the Interim Managers, and the negotiations that took place to secure the restitution agreement; thereby ensuring the repayment of the funds to the charity.

Findings

7. The level of charitable expenditure within the charity –

It was established that very little charitable activity had been carried out since the death of the Charity’s founder in 1998. The trustees indicated that a legacy was being preserved for the purchase of a suitable property to build a holiday respite centre; however this had not been pursued when the Charity’s first choice of property fell through.  Between June 2001 and January 2003, the Charity funded only nine holidays for disabled people and their carers totalling £4,169. Of these recipients, three lived outside the area of benefit. 

8. The relationship between the Charity and the Shop – 

The Shop appeared to be operating as a sole trader outside of the terms of the Charity’s governing document. The Shop was trading under the Charity’s name and did not have a separate bank account. Due to a lack of records it was impossible to construct viable accounts for the Shop.  This failure to maintain proper financial records amounted to misconduct on the part of the trustees.  The draft Charity accounts for the years 1998/99, 1999/2000 and 2000/01 showed the net income from the Shop as £1,151 (1999), £5,530 (2000), £5,891 (2001). The shop has now ceased to operate.

9. The relationship between the Charity and the Company –

The Commission had serious concerns relating to the Charity’s relationship with the Company for which the two trustees were directors. It was established that between April 2000 and October 2002 the Company had submitted 23 invoices to the Charity and had received full payment for these totalling £102,000.  It was established that there was little evidence to support that the work claimed to have been done had in fact been carried out.  None of the former trustees had heard of the Company although they acknowledged that some graphic design work had been carried out for the Charity. These payments therefore appeared to amount to trustee benefit received in breach of trust by the Chair.  It was considered that there was a potential legal claim against the Chair of the trustees for £102,000 less £35,000 for valid out of pocket expenses and a small amount of design work confirmed as undertaken.  The restitution claim was taken forward by the second Interim Manager.

10. Suitability of Trustees -

It was established that the Charity had an insufficient number of trustees required to make decisions effectively.  One trustee lived abroad and played no part in the everyday transactions of the Charity; therefore the Commission was of the view that he was not fulfilling his duties as a trustee and, consequently, had committed a breach of trust.  The Chair and other trustee were connected (father and son respectively) and due to his connections in the Company, the Chair should have resigned as a trustee of the Charity; however, such an action would have left the trustee body with an insufficient number of members to make decisions, or inquorate.  The Commission established that there had been mismanagement by the trustees in the administration of the Charity.  In particular, payments had not been authorised with the full agreement of the trustee body which had allowed the situation to arise with the Company.  It was also established that the Charity’s payments to the Company had resulted in the Chair receiving unauthorised trustee benefit that amounted to a breach of trust.  The Commission took no further action against the trustees following repayment of the amount received in breach of trust and in view of the fact that the Charity is no longer operating.  The Commission has appropriate procedures in place to monitor any potential risks should the trustees decide to become involved in charities in the future.

11. Whether charitable funds had not been properly accounted for;
Whether the accounts fully disclosed the extent of the charity’s operations;

The trustees had not kept sufficient books and records to allow accounts to be properly constructed. This amounted to another breach of trust.

12. Whether the Charity had a viable future -

It was concluded that the Charity did not have a viable future as the shop, as the main source of income, was not trading properly.

Conduct of inquiry

13. Following the opening of the Inquiry in March 2003 the Commission carried out an extensive investigation to determine whether there was any substance to the complaint that had been made. This work included:

• contacting a number of the former trustees to establish if they had any information or concerns relating to the Charity;
• making an unannounced visit to the Shop to determine what work was being undertaken;
• asking further questions of the current trustees;
• contacting Trading Standards;
• directing under s8 of the Act on 9 May 2003 the chair of the trustees to provide copies of the Charity’s accounts from 1992 to 1998 and banking information.

14. To protect the Charity’s assets, on 13 June 2003, the Commission made an Order under Section 18 of the Act to freeze the Charity’s bank accounts so that no payments could be made without the Commission’s prior approval.  A Direction was issued under s8 of the Act to the Charity’s Bank on 8 March 2004 directing it to provide the Commission with bank statements relating to the Charity.

15. On 18 June 2003 a further Direction under s8 of the Act was issued to the accountancy firm working for the Charity directing it to provide information relating to the Charity.

16. As the Commission established that there had been misconduct and mismanagement by the trustees in the administration of the Charity and on the basis that the Charity had no active independent trustees, it was decided that the best course of action would be to appoint an Interim Manager.  Accordingly, on 6 May 2004 the Commission used its power under section 18 of the Act to appoint accountants Malcolm Cohen and Don Bawtree of BDO Stoy Hayward, as Interim Managers.  They were given all powers and duties of the trustees of the Charity to their exclusion.

17. The Commission’s directions for the Interim Managers were to:

• carry out a full review of the financial records of the Charity and to consider the extent to which expenditure had been properly incurred;
• carry out a full review of the Shop’s trading carried out in the Charity’s name;
• ascertain the validity of the invoices submitted by the Company;
• consider to what extent there was a possible claim against the trustees for a breach of trust;
• construct as best as possible the annual accounts of the Charity; and
• establish if the Charity has a viable future and if not to take action to wind it up.

18. During the first stage of work the Interim Managers established that there was a potential restitution claim against the Chair of the trustees.  Pursuing the claim did not fall within the original appointment Order.  Therefore, the Commission took the decision to discharge the original Interim Managers and on 5 October 2006 appointed solicitor Michael King of Stone King as the new Interim Manager.  

19. In addition to those areas regarding the general administration of the Charity, the broad directions for the new Interim Manager were:

• to consider the extent to which there was a possible claim against the former trustees for breach of trust;
• to obtain all the necessary evidence in relation to this claim and take the appropriate action to pursue it; and
• to establish if the Charity had a viable future and if not take action to wind it up.

20. The new Interim Manager reached an agreement with the Chair that he would repay his agreed liability to the charity (plus interest from March 2007) totalling £68,748 as settlement of the restitution claim against him.

21. Funds held by Bath Holiday Trust were awarded as grants by the Charity to four recipient charities with similar charitable objects. These charities were; North Somerset Crossroads Caring for Carers, Leonard Cheshire Disability, Children’s Hospice South West and Carers Gloucestershire.  These charities received over £70,000 each. Stone King were discharged as Interim Managers on 11 May 2008.

Conclusions

22. The trustees failed to govern this charity properly.  The Charity carried out little charitable activity and the trustee body consisted of an inadequate number to make decisions effectively.  The lack of records kept both for the Charity and Shop amounted to misconduct by the trustees. The trustees had failed to administer the Shop within the terms of the Charity’s governing document and its profits were unusually low.  It was not possible to construct meaningful accounts from the records the Charity provided.

23. There was evidence that the Chair of the trustees had received unauthorised trustee benefit amounting to a breach of trust and that invoices submitted from the Company could not be justified. Therefore, the Commission took action to remedy this by obtaining repayments for the unauthorised benefit. The Commission later removed the charity from the register after remaining assets were distributed to local charities to use for proper charitable purposes.  

Regulatory action taken

24. As a temporary and protective measure the Commission acted to:

• obtain additional information by serving a number of Directions under s8 of the Act;
• protect the Charity’s assets by freezing the charity’s bank accounts on 13 June 2003 by Order under section 18(1)(iv)  of the Act;
• safeguard the Charity by making an Order on 6 May 2004 to appoint Malcolm Cohen and Don Bawtree of BDO Stoy Hayward as Interim Managers under s18(1)(vii)  of the Act;
• make Orders on 5 October 2006 to discharge BDO Stoy Hayward as Interim Managers and appoint Michael King of Stone King as the new Interim Manager;
• discharge Michael King as Interim Manager on 11 May 2008 after he had obtained a restitution payment of £68,748 from the Chair of the trustees.

Impact of Commission intervention

25. As a result of the Commission’s intervention the Chair repaid £68,748 to the Charity. This is in addition to the £210,000 that was protected by the Commission during the course of our inquiry.

26. As a result of the Commission’s intervention the charity’s remaining assets of over £280,000 were transferred to four charities operating in the West Country to use for proper charitable purposes. These charities were: North Somerset Crossroads Caring for Carers, Leonard Cheshire Disability, Children’s Hospice South West and Carers Gloucestershire.

27. In May 2008, the Commission prevented further monies being donated to an ineffective, inoperative and improperly governed charity by removing the charity from the register.

28. The Commission has appropriate procedures in place to monitor the Chair and other trustees should they become involved in charities in the future.

Resources applied

Interim Manager Fees and Disbursements

Interim Manager	Fees (+VAT)	Disbursements (+VAT)	Additional costs (including professional fees)
BDO Stoy Hayward	£17,625	£   994.11	£3,878
Stone King	£14,687.50	£      6.00	£0
Totals	£32,312.50	£1,001.11	£3,878

29. The Commission adopted a multi-disciplinary team working approach on this case which involved legal advice and casework management.

Lessons for other charities

30. Charities must be set up for and operate for the public benefit. A charity set up in a way which produces little charitable activity and primarily benefits non charitable organisations or aims is unlikely to be for the public benefit.

31. Trustees must ensure that they properly govern their charity including maintaining their accounts and records. Trustees have a duty to keep accurate accounting records and to regulate the relationship between trading companies and the charity properly and transparently.

32. A charity trustee is not permitted to profit from their position (unless he or she is expressly authorised to do so). A trustee who benefits from a position of trust without the necessary authority is liable to repay the benefit which he or she has received. We will take robust action where this is evident.

33. It is important that funds rescued from unviable charities can be re-distributed to other charities so they can be used actively again to benefit others. 

Date of Publication: 25/06/2008