Re Keeping Kids Co (formerly Kids Co) (No 2)

This is a first instance disqualification claim brought by the Official Receiver under s 6 Company Directors Disqualification Act 1986. The central legal issues were (a) whether the charity's CEO, Ms Camila Batmanghelidjh, was a de facto director and therefore amenable to disqualification proceedings, and (b) whether each trustee and the CEO caused and/or allowed Keeping Kids Company to operate an "unsustainable" business model such that each defendant's conduct made them unfit to be concerned in the management of a company (having regard to Schedule 1 CDDA, paragraph 6, the extent of responsibility for causes of insolvency).

The court applied the established authorities on disqualification and on de facto directorship (in particular Re Barings (No.5), Holland, Tjolle, Kaytech and Smithton v Naggar) and emphasised that context is critical: the role actually assumed by a person, the corporate governance structure and whether proper delegation plus supervision existed. The court made extensive factual findings about the charity's finances from 2012 onwards (seasonal income, fundraising, growth and the Bristol replication), interactions with government, HMRC, the bank, the use of loans, accruals in the statutory accounts, the departure of senior managers, minutes and record-keeping and the management of client spend.

Having considered the law and the evidence, the judge concluded that (i) Ms Batmanghelidjh did not assume the status and functions of a director and was not a de facto director, and (ii) none of the Trustee defendants were shown to be unfit within the meaning of s 6 CDDA. The judge rejected the allegation that the trustees "caused and/or allowed" an inevitably unsustainable model from the dates relied upon: although the charity had serious cash flow risk and the trustees could have wished to move earlier to more radical contingency measures, they had not acted with the level of incompetence required to justify disqualification, in particular given the charity context, the Board’s supervisory role, the auditors' going-concern sign-offs and ongoing discussions with government and philanthropists.

This is a detailed trial judgment following a 10 week hearing concerning the liquidation of the charity Keeping Kids Company in August 2015 and a subsequent disqualification claim issued by the Official Receiver in 2017. The claim sought disqualification orders under s 6 of the Company Directors Disqualification Act 1986 against the charity's trustees and its CEO. The defendants were the CEO, Ms Camila Batmanghelidjh, and eight trustees. The Official Receiver pleaded a single allegation in substance: that the trustees and the CEO caused or allowed the charity to operate an "unsustainable business model" and that they knew or ought to have known that failure was inevitable without immediate material change (dates relied on were 27 September 2013 and 30 November 2014).

Background and procedural posture:

• Keeping Kids Company was a substantial incorporated charity providing intensive support to very vulnerable young people; its model was demand-led and notably relied on self-referral and heavy staff input.
• Following liquidation, the Official Receiver issued a Part 8 claim seeking disqualification of the trustees and the CEO under s 6 CDDA; he sought periods of disqualification ranging from 2.5 to 6 years depending on the defendant.
• The case involved extensive documentary disclosure, experts' reports commissioned by government, multiple witness statements and viva voce evidence over many days in October–December 2020.

Nature of the claim / relief sought: (i) Disqualification orders under s 6 CDDA against each defendant (ii) The principal factual allegation: that the defendants caused or allowed the charity to operate an unsustainable model from specified dates, with inadequate governance, inadequate financial controls, excessive reliance on loans and ad hoc donations, and failure to implement contingency measures.

Issues framed by the court: (ii) Whether Ms Batmanghelidjh, though not formally appointed a director, had been a de facto director; (iii) whether any defendant's conduct made them unfit to be concerned in company management under s 6 (that is, whether incompetence/deliberate failings amounted to unfitness); (iv) interaction of charitable context, the trustees’ non-executive role, delegation and supervision; (v) relevancy of audited accounts, management accounts, accruals, loans, HMRC dealings, bank relations, fundraising, government contacts and contingency planning.

Court’s reasoning (concise):

• The court set out the governing principles for disqualification: s 6 CDDA, the requirement to "have regard" to Schedule 1 matters (in particular paragraph 6 regarding responsibility for causes of insolvency) and the test of unfitness established by authority (eg Re Barings (No.5)). The court also reviewed the law on de facto directorship (Holland, Tjolle, Kaytech, Smithton) and emphasised that the critical question is whether the individual assumed the status and functions of a director as part of the "corporate governing structure".
• Factual findings were extensive and specific: the charity’s income was highly seasonal; staff costs formed the majority of expenditure; the charity expanded (including Bristol) on a policy supported by Government; statutory accounts for 2012 and 2013 were signed on a going-concern basis after discussion of a contingency plan; cash-flow was tight and loans were used to bridge timing gaps; the trustees increased oversight (Finance Committee, Governance Committee) and sought contingency planning and additional government funding; the final restructuring in 2015 involved government and philanthropist funding but was prevented from continuing by sudden allegations that led to withdrawal of support.
• On de facto directorship the court held that, although Ms Batmanghelidjh played a central operational and fundraising role, she did so as CEO under delegation from the Board, subject to its supervision and control; she was not "on an equal footing" with trustees in the corporate governing structure and had not assumed the duties of a director.
• On unfitness the court found that the trustees (and CEO in her executive role) did not exhibit the "high degree" of incompetence required for disqualification: trustees had engaged with qualified staff and auditors, considered forecasts and contingency plans, kept under review HMRC, bank and loan issues, sought external professional help (Hogan Lovells / KPMG / advisors), and had genuine and reasonable expectations (from ministerial contacts and donor support) that additional funding and/or restructuring could secure the charity's future. The court emphasised the importance of context: the charitable remit, the trustees' part-time and volunteer status, the role of fundraising, and the practical difficulties of cutting staff-intensive services.

Conclusion: The court dismissed the Official Receiver’s claim; no disqualification orders were made. The CEO was not found to be a de facto director and the trustees were not shown to be unfit to be concerned in company management to the required degree.

The claim is dismissed. The court held that the CEO, Ms Camila Batmanghelidjh, was not a de facto director and that none of the Trustee defendants were shown to be unfit under s 6 Company Directors Disqualification Act 1986. The judge concluded that, although the charity faced severe cash-flow risk and the trustees could have wished to have implemented more radical contingency measures earlier, their conduct fell within a range of reasonable decision-making in context (charitable company, seasonal donations, active engagement with government and philanthropists, auditors’ going-concern sign-offs and active use of contingency planning). The Official Receiver therefore did not prove incompetence of the high degree required for disqualification.