The Challenge collapsed owing £8m

03 Feb 2020 News

The Challenge owes £7.9m to unsecured creditors and almost £1.3m in redundancy payments, according to documents filed with Companies House by the charity’s administrators.

The Challenge went into administration last year after losing its contract with the NCS Trust to deliver the youth social action programme the National Citizen Service.

Its income was largely dependent on this contract. In the two years to 31 December 2018 the charity received contract income from the NCS Trust of £73.6m – this represented 95 per cent of the charity's total income for that period.

The administrator reports that in 2015, the NCS Trust required providers to migrate onto its own CRM system. It gave The Challenge an exemption from 2015-2018, but in 2018 it retracted this exemption. Difficulties associated with the system migration then “gave rise to a breakdown in relations between the company [charity] and the NCS Trust”.

In March 2019, The Challenge was provisionally awarded future NCS Trust contracts for 2020-23 with the possibility of a two-year extension. This contract was withdrawn in July 2019. 

The reasons for the contract withdrawal are “disputed” by the Company and the NCS Trust.

The Challenge took steps to restructure itself as it could “no longer operate on the same basis due to the substantial loss of income” from the NCS Trust, but was eventually declared insolvent.

In September 2019 The Challenge commenced legal proceedings against the NCS Trust – with a £26m claim filed at the High Court.

Redundancies and employees

The Challenge owes almost £1.3m in redundancy fees to staff who were due to leave by 30 November, but who were unable to receive payments after the charity went into administration on 25 November last year.

Employees directly attached to the NCS programme had been transferred across to new providers as part of TUPE processes. Meanwhile, formal redundancy notices were issued to other staff in late October.

Employees that were to be made redundant were offered a package that included the statutory entitlement. This was extended to those with less than two years service, plus an ex-gratia payment equivalent to their notice period.

The charity had begun to downscale operations and reduce staff prior to the administration. But on appointment of the administrators there were 209 employees at the charity, with 85 due to leave on 30 November.

The administrators decided to retain 50 staff, including senior leadership, some employees in finance and HR and others “critical to assisting the administration”. Employees associated with HeadStart and T-level programmes were also retained.

Creditor claims of almost £8m

The estimated amount currently owed to unsecured creditors is £7.9m. To date, creditor claims totalling £4.2m have been received, but creditors are in contact “on a daily basis” with new claims.

The amount of debt to company creditors, excluding employees and consumers is listed as £6.3m.

Real Challenge Action funds were raised by young people for a selected social action project. The funds were kept in the same bank accounts as the charity’s funds, rather than in a separate account. Legal advise is being sought on how best to proceed.

The Challenge debtors and funds

The report says that the charity owned large volumes of IT equipment and estimates that there are 7,000 items to be sold. 

On the administrators' appointment, the charity held cash at bank of £3.3m and was owed £141,516 by debtors. Other funds from the charity's safe, pre-paid cards and other accounts were also banked into the administration. These amounts totalled around £70,000. 

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