Regulator disqualifies charity trustees who made nearly £950,000 in unsecured loans

09 Jul 2024 News

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Civil Society Media

The Charity Commission has disqualified two trustees of a church charity that made nearly £950,000 in unsecured loans to a property developer.

Yesterday, the regulator published an inquiry report on Citygate Christian Outreach Centre, a charity that runs a church in London and has been subject to a statutory inquiry since August 2021. 

The regulator opened its inquiry after identifying that the former trustees had given a property developer a “significant” unsecured loan and concerns around payments to trustees and others connected to the charity.

Citygate Christian Outreach Centre was originally placed into the regulator’s double defaulter class inquiry in March 2021 after it failed to submit its annual report, accounts and return for the year ending 31 March 2020.  

‘Poor judgement’ from trustees

Between 2018 and 2021, Citygate Christian Outreach Centre made unsecured loans totalling £948,450 to a property developer so that “he may build a home for disabled children in Dubai”, its accounts say. 

The loans were to be repayable within 60 days of notice being given and bore interest at 10% per annum.

By the time the charity entered the regulator’s double defaulter class inquiry in August 2021, the property developer still owed it £915,450 excluding interest. 

The regulator found that the individual was an associate of one of the charity’s two former trustees who signed the loan agreements, which amounted to more than 80 separate payments by March 2021.

It also found that the individual did not provide any paperwork to the former trustees about the proposed investment that evidenced how he would use the loans or how the interest would be generated.

The former trustees failed to consider securing the loans or seeking professional independent advice on the risks of loaning huge amounts of the charity’s money.

‘Serious mismanagement’

The inquiry concludes that there was “serious misconduct and/or mismanagement” by the former trustees in the charity’s administration and management.

It says: “The inquiry found that the former trustees had demonstrated poor judgement and inadequate decision making in relation to the issuing of loans to the property developer between February 2018 and March 2021 when the loans were first recalled.”

The regulator noted that the charity had a third trustee between December 2018 and March 2021 who resigned from his position following the independent auditors’ report in the charity’s accounts for the year ending 31 March 2020

“We draw attention to note 2.2 in the financial statements, which indicates that the non-payment of loans identified may cast significant doubt on the group’s ability to continue as a going concern,” the inquiry report reads.

Although the third trustee had not signed any of the loan agreements or arranged payments to the property developer, the regulator said he did not take “any action to mitigate the risks of these agreements”.

“During his tenure as a trustee for over two years, the third trustee was collectively responsible for, contributed to or facilitated misconduct or mismanagement in the charity or knew of the misconduct and/or mismanagement and failed to take any reasonable step to oppose it,” the report says.

“In February 2024, he was disqualified for two years from acting as a trustee or taking a senior management position within a charity.”

Commission satisfied concerns have been addressed

Citygate Christian Outreach Centre has now recovered more than £500,000 through a settlement agreement with the property developer. 

The regulator said it is satisfied that if the developer “continues to adhere to the settlement agreement, the charity will not have suffered a financial loss”.

Amy Spiller, head of investigations at the Commission, said: “In this case, we found the former trustees had shown poor judgement when they used almost £1m of charitable funds on high-risk loans. 

“The independent auditor noted non-payment of the loans could affect the charity’s ability to be a going concern. 

“This amounted to serious mismanagement and as such, we used our powers to take action against this charity’s now former trustees which resulted in their disqualification.

“Following our intervention, and appointment of a new trustee board, the charity is improving how it’s run and has already recovered more than half of the loaned funds.

“We’re satisfied all concerns raised as part of the inquiry have been addressed.”

The charity has not yet responded to Civil Society’s request for comment.

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