The Official Receiver v Sunetra Atkinson
| Jurisdiction | England & Wales |
| Judge | Mrs Justice Falk |
| Judgment Date | 12 February 2021 |
| Neutral Citation | [2021] EWHC 175 (Ch) |
| Date | 12 February 2021 |
| Docket Number | Case No: CR-2017-006113 |
| Court | Chancery Division |
In the Matter of Keeping Kids Company and in the Matter of
The Company Directors Disqualification Act 1986
[2021] EWHC 175 (Ch)
Mrs Justice Falk
Case No: CR-2017-006113
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
INSOLVENCY AND COMPANIES LIST (ChD)
Rolls Building, Royal Courts of Justice
Fetter Lane, London, EC4A 1NL
Lesley Anderson QC and Gareth Tilley (instructed by Womble Bond Dickinson (UK) LLP) for the Claimant
Rupert Butler (of Leverets) and Natasha Jackson (instructed by Leverets) for the Second Defendant
Daniel Margolin QC and Daniel McCarthy (of Joseph Hage Aaronson LLP) for the Third Defendant
George Bompas QC and Catherine Doran (instructed by Bates Wells) for the Fourth and Sixth to Ninth Defendants
Andrew Westwood (instructed by Maurice Turnor Gardner LLP) for the Fifth Defendant
Hearing dates: 19–22 and 26–29 October, 3–6, 9–12, 16–20, 23–26 and 30 November, 1–4, 7–9, 11 and 14–17 December 2020
Approved Judgment
I direct that no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
| CONTENTS | Paragraph |
| INTRODUCTION | 1 |
| BACKGROUND: A BRIEF HISTORY | 4 |
| THE DEFENDANTS | 18 |
| THE ISSUES IN OUTLINE | 51 |
| THE EVIDENCE | 61 |
| The documentary evidence | 61 |
| The witness evidence | 65 |
| Contacts between ex-employees: impact on evidence | 131 |
| Similarities between defendants' affidavits | 136 |
| LEGAL PRINCIPLES | 139 |
| Disqualification | 139 |
| De facto director | 153 |
| FACTUAL FINDINGS: GENERAL | 168 |
| Kids Company's business model | 172 |
| General | 172 |
| Seasonality of income | 185 |
| Increasing scale: general | 186 |
| Increasing scale: Bristol | 189 |
| Financial position from 2012 onwards | 199 |
| Warning signs in 2012? | 201 |
| Financial position during 2013: general | 212 |
| Approval of the 2012 accounts (September 2013) | 219 |
| January to September 2014 | 233 |
| Approval of the 2013 accounts (September 2014): going concern issue | 246 |
| October to December 2014 | 267 |
| The outturn for 2014 | 282 |
| January to March 2015 | 289 |
| April to July 2015 | 307 |
| HMRC | 316 |
| Relationship with the bank | 335 |
| Dependence on loans | 347 |
| Mr Spiers' loan | 360 |
| Income: projections and accruals | 369 |
| Income projections | 369 |
| Accruals | 379 |
| Findings relating to the departure of senior managers | 389 |
| Government funding | 437 |
| History: NAO report | 437 |
| Interactions with Ministers and other senior figures | 445 |
| Government commissioned reports: PKF Littlejohn and Methods | 501 |
| Support from donors: risk of donor fatigue? | 509 |
| Reserves | 528 |
| Client spend (kids costs) | 541 |
| Allegation of dominance: general | 579 |
| Alleged preferences in April 2015 | 595 |
| Whether the restructuring would have succeeded | 602 |
| Non-implementation of a contingency plan before the July 2015 restructuring | 616 |
| Timing of change to Ms Batmanghelidjh's role | 624 |
| FACTUAL FINDINGS SPECIFIC TO MS BATMANGHELIDJH | 633 |
| Role as CEO: financial aspects | 634 |
| Ms Batmanghelidjh's approach to creditors and overoptimism | 642 |
| Failure to accept seriousness of deteriorating financial situation | 648 |
| Minutes | 653 |
| Contacts between staff and Trustees: general | 660 |
| Mr Kendrick | 663 |
| WAS MS BATMANGHELIDJH A DE FACTO DIRECTOR? | 669 |
| The Official Receiver's case | 669 |
| The case as put in Mr Hannon's first report | 669 |
| The case as developed by Counsel | 676 |
| The corporate governance structure | 682 |
| The Articles of Association | 683 |
| Ms Batmanghelidjh's employment contract | 688 |
| The Financial Procedures Manual | 690 |
| Discussion | 697 |
| The CEO role and the role of the Board | 704 |
| The functions relied on by the Official Receiver | 712 |
| HMRC | 713 |
| Loans | 715 |
| Negotiating with donors | 723 |
| Commissioning research | 724 |
| Holding out | 727 |
| The case as developed: Discussion | 732 |
| Centrality of role | 736 |
| Clinical judgment | 746 |
| Ms Batmanghelidjh being “indispensable” | 747 |
| Implied authority, in particular for loans, indicating overall responsibility | 749 |
| Taking on additional staff | 753 |
| Deciding priority of payment | 776 |
| Minutes | 778 |
| Operating policies being disregarded | 780 |
| Did Ms Batmanghelidjh join in decisions? | 782 |
| Conclusions on the de facto director allegation | 785 |
| THE “SINGLE” ALLEGATION: DISCUSSION | 795 |
| Preliminary observations | 795 |
| The model | 800 |
| “Unsustainable” and paragraph 6 Schedule 1 CDDA | 811 |
| The real issue in this case | 823 |
| The significance of discussions with government (and donors) | 827 |
| Allegations of inadequate control, dominance and resistance to change | 836 |
| Kids costs | 841 |
| Allegations in respect of senior management | 845 |
| WHETHER THE DEFENDANTS WERE UNFIT | 846 |
| The relevance of Kids Company being a charity | 847 |
| The role of the Board, delegation and non-executive directors | 856 |
| Section 174 Companies Act 2006 | 864 |
| Trading at risk of creditors and unfitness | 870 |
| Application of the legal test | 874 |
| The individual Trustees | 882 |
| Ms Batmanghelidjh | 893 |
| RECOMMENDATIONS | 898 |
| CONCLUSIONS | 911 |
| APPENDIX: DRAMATIS PERSONAE |
INTRODUCTION
In August 2015 the well known children's charity, Kids Company, entered insolvent liquidation. After a lengthy and extensive investigation, and shortly before the two year time limit for doing so expired, the Official Receiver commenced proceedings against all of the directors who had been in office at or shortly before the date of the charity's collapse (the “Trustees”), together with its Chief Executive Officer (“CEO”). By its claim the Official Receiver seeks to disqualify each of them under s 6 Company Directors Disqualification Act 1986 (“ CDDA”). With the exception of one Trustee, all the defendants chose to defend the claim. A 10 week trial followed between October and December 2020. This is my decision on the Official Receiver's claim.
The structure of this judgment can be seen from the table of contents. After a brief outline of the background and procedural history, I set out some information about each of the defendants and summarise the issues. I then describe the evidence, including comments on the individual witnesses, and summarise the relevant legal principles. The sections that follow contain my factual findings and conclusions covering the principal areas of factual dispute. (A dramatis personae of key individuals is included as an Appendix to assist the reader.) I then turn to apply the legal principles to the facts, first by determining whether the second defendant, Camila Batmanghelidjh (the CEO), was a de facto director, and then by determining whether the test for disqualification is satisfied. I conclude with some recommendations.
The way in which the factual findings have been set out reflects the different issues raised in this case. So whilst the general findings in relation to the charity's financial position from paragraph [199] onwards are chronological, others are dealt with by subject matter or theme. This, and the interconnected nature of the issues more generally, inevitably requires a great deal of cross-referencing. Cross-references are indicated by square bracketed references to paragraph numbers of this judgment.
BACKGROUND: A BRIEF HISTORY
Kids Company was founded in 1996 by Ms Batmanghelidjh, originally as a drop-in centre under railway arches in Camberwell. It was incorporated as a company limited by guarantee in September 1997 under the name “Keeping Kids Company”, and was registered as a charity in February 1998. I will refer to it throughout as Kids Company, being the name by which it was generally known.
Kids Company developed to provide support to disadvantaged and vulnerable young people at a number of centres in London, and latterly Bristol and Liverpool, as well as schools in London and Bristol. The original drop-in centre was replaced by “Arches II”, at Kenbury Street in Brixton. I will refer to the children and young people that Kids Company supported as “clients”, although I should clarify that Kids Company did not charge them for its services.
In common with other incorporated charities, the Trustees were the directors of Kids Company. They were both “charity trustees”, being the persons having the general control and management of the administration of the charity (s 177 Charities Act 2011), and company directors, subject to duties as such. The Trustees operated through full Trustee meetings (the “Board”) and also through two Board committees, the Finance Committee and Governance Committee, which each comprised certain members of the Board. The Board generally met six times a year. The Governance Committee met with similar regularity, and the Finance Committee met at least nine times a year (in practice monthly by 2014). The Trustees all saw the minutes of meetings of the two Board committees. They also received detailed reports on the finances at each Board meeting, typically with copies of the most recent monthly management accounts considered by the Finance Committee.
With limited exceptions, charity trustees may not be remunerated for their role. There is no dispute that the...
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