Category: Charity

Lessons from the Kids Company Judgment: Strengthening Charity Governance and Financial Oversight 

Posted on by Katherine Pipe

The High Court’s recent decision on the Charity Commission’s inquiry into Kids Company has important implications for all charity trustees. The judgment confirms that even well-intentioned, passionate leadership is not enough to protect a charity from serious governance failures and is a good moment to reflect on how we got here. This article sets out what happened in the Kids Company case, what the Commission and the courts found, and most importantly, what other charities can learn.

What Happened at Kids Company?

Kids Company was established in 1998 with the purpose of preservation of health for children in need of counselling, support and therapeutic use of the arts, by reason of their social or family circumstances. It received millions of pounds in public funding, including repeated government grants. In August 2015, Kids Company closed abruptly with many employees being made redundant triggering widespread concern and scrutiny from the media, government and the public.

The Charity Commission launched a statutory inquiry shortly after the closure, examining the charity’s governance, risk management, safeguarding, and financial practices. Its final report, published in February 2022, found significant mismanagement of the charity’s finances, particularly:
– Persistent cashflow crises
– Over-reliance on public funding
– Failure to build reserves or plan for financial shocks
– Weak financial oversight by the board

Crucially, the Commission did not find any dishonesty, bad faith, or personal gain by trustees or staff.

The Charity Commission’s statutory inquiry was paused when the Official Receiver initiated proceedings against all trustees who had been in office at or shortly before Kids Company’s collapse, along with the CEO. The Official Receiver sought to disqualify them under section 6 of the Company Directors Disqualification Act 1986, which permits disqualification where a person is found to have engaged in unfit conduct while serving as a director of an insolvent company. The Official Receiver argued that the trustees and CEO were unfit because they had caused or allowed the charity to operate an unsustainable business model.

However, the High Court dismissed the claims. It found that the trustees and CEO were not unfit, but had made honest decisions in good faith, under difficult circumstances, and with the charity’s interests at heart. The court emphasised that the trustees had sought and followed professional advice, including financial guidance, and viewed this as evidence of responsible governance—even though the charity ultimately failed.


Several former trustees challenged the Commission’s statutory inquiry findings in the High Court by way of a judicial review. In May 2025, the Court upheld the Commission’s core conclusions, stating they were based on “ample evidence.” The Court confirmed that the Commission had not predetermined its findings and had acted within its statutory remit. While the Court identified two paragraphs in the statutory inquiry report that contained important errors, it found the Commission’s overall findings to be rational and reasonable.

Key Lessons for Trustees and Charity Leaders

The Kids Company case offers timely and vital governance lessons for all charities, regardless of size or purpose. Below are four key takeaways to help trustees fulfil their duties and protect their charities from similar risks:

1. Build Financial Resilience

The Charity Commission characterised Kids Company’s financial situation as a ‘hand-to-mouth’ existence. It found that by not prioritising the creation of adequate reserves, the trustees neglected their duty of care to both employees and donors. This highlights a crucial lesson for trustees: prioritising realistic budgeting, accurate financial forecasting, and establishing clear reserve policies is essential to protect your charity’s long-term sustainability and fulfil your duties as trustees.

2. Governance must evolve with Growth

The Charity Commission found that Kids Company maintained informal, founder-led governance structures even as it grew into a large, national charity, which may have contributed to its ultimate demise. Trustees must regularly review their governance structures to reflect changes in the charity’s scale, complexity, and risk profile. They should also be aware that founder-led leadership by a charismatic individual can obscure risks embedded in established ways of working. While founders bring passion and vision, it’s important to balance their influence with robust governance structures to ensure ongoing challenge and oversight.

3. Document Risk and Decision-Making

There were insufficient records for the Charity Commission to make findings in some areas of the statutory inquiry. Clear records of board discussions, risk assessments, and financial decisions are critical, not just for compliance, but to demonstrate accountability in the face of scrutiny. This is particularly important where decisions involve significant risk.

4. Take and Record Professional Advice

The High Court recognised that Kids Company’s trustees had sought and followed professional advice, including on financial matters. This was a significant factor in the Court’s decision not to disqualify them, despite the charity’s failure. Trustees should not hesitate to seek expert guidance (whether legal, financial, or operational) when navigating complex or high-risk decisions. Importantly, they should also ensure that this advice, and how it informed board decisions, is clearly documented. Doing so not only supports sound governance but also provides protection in the event of scrutiny.

How We Help Charities Stay Compliant and Resilient

As specialist charity lawyers, we help charities strengthen governance, manage risk, and remain compliant under increasing scrutiny from regulators, funders, and the public.

We support charities with:
– Governance health checks and structural reviews
– Trustee training on legal duties and best practice
– Financial oversight and reserves strategy guidance
– Risk management and safeguarding policies
– Support during Charity Commission inquiries or serious incidents
– Constitutional amendments and governance advice


Whether your charity is scaling up, managing public funds, or navigating internal changes, we can help you build strong, resilient systems for long-term success.

Contact Kate Pipe at kate.pipe@wellerslawgroup.com or call 020 7481 2422

Charity Structures for International Religious Organisations

Posted on by Peter Spencer

If you’re an international religious organisation looking to establish a formalised legal charity in the UK, there are several structures you can adopt to carry out your philanthropic activities. You may wish to bring overseas workers to support your endeavours, but it is crucial to establish your charity and obtain your charity number before considering visa applications.

The three primary structures to consider are trusts, charitable companies, and charitable incorporated organisations (CIOs).

Trusts

Trusts are a well-known but often considered an archaic structure. Trusts are unincorporated, meaning that the trustees of the charity have personal liability and can be sued personally. To register with the Charity Commission, a trust needs a minimum income of £5,000, which is standard for most charity structures.

It is good to be aware of trusts, but they are generally not recommended due to the personal liability involved.

 

Charitable Companies

A charitable company is established as both a company and a charity. It is considered established from the point of registration with Companies House, which can take around 72 hours. This means you don’t have to wait for registration with the Charity Commission to begin charitable activities in the UK, which can take up to six months. This is particularly beneficial if you wish to purchase property in the UK quickly. Like trusts, a charitable company requires a minimum income of £5,000 to register with the Charity Commission.

Unlike trusts, charitable companies are incorporated structures, limiting trustee liability, meaning trustees cannot be personally sued. Another significant advantage is that charitable companies are generally recognised internationally, which can facilitate dealings with foreign banks and reduce the need for extensive explanations. This structure can also be advantageous if you need to borrow money, for example, to purchase property, as banks often prefer charitable companies over CIOs, although this preference is changing.

The primary disadvantages of charitable companies are that they are subject to both the Companies Act and the Charities Act, and the trustees are also directors. This dual responsibility requires some education to ensure compliance with both sets of regulations, including dual reporting.

 

Charitable Incorporated Organisation (CIO)

The Charities Commission introduced the CIO structure because many people found the concept of a charitable company too complex. CIOs are incorporated structures that limit trustee liability, meaning that any legal claims are limited to the assets within the CIO.

There is no income threshold for registration with the Charity Commission, so you do not need a pledge letter from your parent charity. However, you must wait for the Charity Commission to grant charitable status and provide a charity number before commencing philanthropic work and bringing overseas workers to the UK.

A key advantage of a CIO is that you only need to file annual reports with the Charity Commission, unlike a charitable company which requires dual reporting. CIOs are more suitable for smaller organisations not looking to purchase property immediately and are comfortable with the wait for Charity Commission registration.

 

It is essential to remember that before bringing overseas religious workers to support your charitable activities, you must have chosen your charity structure and received your charity number from the Charity Commission.

If you want to set up a charity in the UK to facilitate your philanthropic work, get in touch with Peter Spencer today by email at peter.spencer@wellerslawgroup.com.