Part of Charity Commission’s Kids Company report ‘extremely unfair’, says judge

Part of a Charity Commission report into the collapsed charity Kids Company was “extremely unfair”, a High Court judge has said.

In February 2022, the regulator published a report into the management of the charity after it went into liquidation in August 2015 following unfounded safeguarding allegations.

The charity had supported vulnerable children and young people in London and Bristol and previously attracted celebrity backers including former prime minister Lord David Cameron, Coldplay and artist Damien Hirst.

The commission’s report said the charity had operated a “high-risk business model” and that there was mismanagement in relation to late payments.

At a hearing in March, the charity’s former clinical director Michael-Karim Kerman brought a legal challenge to have the report declared unlawful, while the Charity Commission defended the claim.

In a judgment on Tuesday, Mr Justice Sheldon said two paragraphs from the report were “irrational” but dismissed the rest of the challenge.

One of the paragraphs related to the so-called “top 25”, the beneficiaries who received the largest amounts of financial assistance from Kids Company.

Mr Justice Sheldon said there was an innuendo in the Charity Commission report that these payments may have been problematic.

This was despite previous findings of a High Court judge in other proceedings that this expenditure had been scrutinised appropriately by the trustees, which was not mentioned in the report.

He said: “The commission’s observations… which give rise to the innuendo that the payments to the ‘top 25’ may not have been justified – are unbalanced and one-sided.

“This is extremely unfair to the charity and the trustees.

“Although the commission has a discretion as to what to include in the report of a statutory inquiry, that discretion must be exercised lawfully.”

In his 49-page ruling, Mr Justice Sheldon also said another part of the report implied the charity was unable to “weather the storm” as a result of the decision to operate with a low level of reserves.

The judge said this contradicted the findings of the previous judge, who said three months of operating expenditure in reserve would have been well short of what was needed.

Mr Justice Sheldon continued: “This is a clear criticism of the trustees and would be likely to have a materially negative impact on them, as the reasonable reader would view the report as the commission saying that they were, at least in part, responsible for the demise of the charity and the good work that it was doing.”

He later said the commission did not have to follow the findings of the previous judge, but “the findings needed to be grappled with”.

Mr Justice Sheldon later said that while several criticisms were made of the Charity Commission’s comments about the Kids Company operating model, “some, but not all, of the criticisms complained about were reasonably open to the commission to make”.

The judge said that the finding of financial mismanagement was “clearly one that was open” to the commission to make, and that there was “plainly” a basis to describe the charity’s operating model as being high risk.

He concluded: “I do not consider that the report, looked at as a whole, was irrational.

“The fact that the report contains errors, and even a small number of irrational findings or observations, does not mean that the overall document is irrational.”

Mr Kerman had continued the legal challenge initiated by former chief executive Camila Batmanghelidjh before her death in early 2024, and he was said to be “vindicated” by the ruling.

Following the judgment, Mr Kerman said: “Since Kids Company’s traumatic closure in August 2015 there has been a concerted attempt to denounce unfairly the charity and all who were touched by it, whether in the capacity of staff, volunteer, supporter or one of the thousands of vulnerable young children and families the charity served for nearly 20 years.

“The iron path to justice has been an arduous struggle for the supporters of Kids Company, in their relentless struggle to imprint the truth.”

Alex Goodman KC, who represented Mr Kerman, said Tuesday’s decision was the first time the High Court has found the Charity Commission to have acted irrationally.

“I am delighted my client’s claim has been vindicated,” he added.

In a statement following the ruling, the Charity Commission said the judgment upheld the finding of mismanagement of the charity’s finances and rejected the claim of predetermination.

It continued: “The court has confirmed it was entirely reasonable for the commission to have drawn independent regulatory conclusions on the demise of Kids Company, based on all the evidence available, in keeping with the role Parliament has set us.

“The judgment notes we took care in the inquiry report to point out areas in which the charity’s trustees were acting within their duties and responsibilities, and where we found external criticism of the charity was unfounded.”

The statement concluded: “While the court has dismissed the challenge on all but two grounds, and is clear that the overall findings of our report were not ‘irrational’, we acknowledge its finding that we made important errors in relation to two paragraphs of the report and will act to remedy this.”