What can we learn from the Brotherhood of the Cross and Star Inquiry?

28/03/2012

There’s no denying that the situation faced by the the Brotherhood of the Cross and Star (the ‘Charity’) is not one which will be faced by many charity trustees.

However, before Liverpool City Council applied to the court to make the Charity insolvent because of an unpaid debt of approximately £385,000, and the charity came to the attention of the Charity Commission for a second time, the Charity had a governance issue which is not as infrequently found as it should be.

How did the Charity wind up almost being wound up?
The Charity first came to the attention of the Commission in 2001/02, when it was alleged that funds were being misused abroad. There was also a conflict between two groups of individuals within the Charity, with each group complaining that it was the true ‘Council of Management’ (i.e. board of charity trustees). The Commission opened an Inquiry, came to the conclusion that the funds of the Charity were safe, and advised the two groups to enter into mediation to find a way to resolve their difference of opinion about the Charity’s management.

When the Commission opened its second inquiry into the Charity, as a result of the threatened court action by Liverpool City Council, it became clear that this issue over the trusteeship of the Charity had not been resolved.

In fact, the confusion over the management of the Charity had resulted in the bank which held the Charity’s cash removing the funds from the reach of both of the purported Councils of Management. This in turn meant that the cash could not be used to settle the debt owed to Liverpool City Council, prompting the council’s bid to wind up the Charity.

So, which group was the true Council of Management?
Neither of them, as it turned out.

The constitution of the Charity stated that the members of the Council of Management should be elected by the members of the Charity. However, this had not happened for many years, and it had become standard practice that members of the Council of Management should be selected and removed by the Brotherhood of the Cross and Star in Nigeria.

A disagreement as to the leadership of the Brotherhood of the Cross and Star in Nigeria brought about the existence of the two purported Councils of Management.

However, no member of either of the purported Councils of Management had been validly appointed and with no valid appointments, no-one at the Charity was legally entitled to manage the assets of the Charity…

What did the Commission do?
It is the Commission’s policy not to involve itself in disputes between trustees of a charity, unless the assets of the charity are at risk. This would explain why, in 2002, once the Commission had ascertained that the assets of the Charity were not being misused, it merely encouraged the members of the two Councils of Management to take part in mediation to resolve the issue of the management of the Charity.

Initially, at the start of the second Inquiry in 2008, the Commission still tried to work with the members of the Councils of Management to deal with the Charity’s problems. It offered to assist with the conduct of a satisfactory electoral process.

However, it became clear that the two Councils of Management could not agree on a way in which a new Council of Management could be appointed and the Commission was finally forced to appoint an Interim Manager (a lawyer specialising in charity law) to deal with the issues threatening the Charity, before the court dealing with the insolvency petition for the Charity lost patience and wound the Charity up.

The Interim Manager was given administrative control of the charity for just over one year. Thankfully, the Interim Manager was able to deal with the bank account issue, and stop the Charity from being made insolvent. He also recommended an administrative restructuring of the Charity, which members of each of the two Councils of Management would be invited to join.

One simple lesson from this tale of two Councils of Management
Every charity should make sure that its trustees are correctly appointed!

First step for appointing a new trustee: check the charity’s constitution for how trustees should be appointed. If it says new trustees are elected by the members at a quorate general meeting, the trustees should make sure this happens. If it says the existing trustees appoint the new trustees by resolution or by deed, then the trustees should do that instead.

They also need to make sure the appointment is documented correctly, as organisations such as banks which hold assets for the charity will need to see evidence that the appointments were made correctly before they will be prepared to update their records.

If trustees are unsure about how trustees should be appointed, or how the appointment should be documented, despite having checked the charity’s constitution, they shouldn’t just guess. Instead, they should seek advice.

Obviously, not all failures to appoint trustees correctly will result in the kind of cataclysmic situation faced by the Charity. However, lesser problems can be encountered – like banks refusing to recognise the authority of new charity trustees, for example. And, as the appointment of a charity trustee can be so straightforward, there seems little reason to get it wrong.

So, what can be learnt from the Inquiry into the Brotherhood of the Cross and Star? The answer may be: more than you might initially have thought.

The full Inquiry can be found here.

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When is a letter of pledge not enough?

14/11/2011

Well, according to a telephone conversation I had with a Charity Commission employee on the helpline today, a letter of pledge is now never going to be sufficient proof that a charity will receive more than £5,000 in income in its first year of operation for registration purposes.

I asked why this change had come about, and the answer was the Charity Commission had been told by a number of fairly newly registered charities that the funds pledged never came through from the donors. Fair enough, I suppose.

I asked when this change in approach had occurred, and was told that it was “ages ago”, and, when I pressed for more detail than this, that it must have been close to the beginning of the year.

I asked whether this change had been publicised to those assisting with the creation and registration of charities, and was told that I had missed nothing. It had not been publicised at all.

This was slightly annoying. When you’re trying to help people to set up and register charities as quickly and efficiently as possible, it seems perverse for the regulator to make such a decision but not publicise it.

Gritting my teeth slightly, and trying to find out what might now do the job of the letter of pledge, I asked whether a copy of a contract under which the charity is entitled to at least £5,000 of income in its first year of operation would be sufficient proof of income. It would. I then asked if a deed of gift by an individual, which is similarly enforceable by the charity in the courts, would also be sufficient evidence. It would.

So, it looks as though there’s more paperwork for me to prepare (and so more costs incurred for the client), and more paperwork to submit to the Charity Commission on registration. Joy…