Decision

Chesed Leyisruel Trust

Published 20 June 2019

This decision was withdrawn on 18 January 2022

This Inquiry report has been archived as it is over 2 years old.

The Charity

Chesed Leyisruel Trust (‘the charity’) was registered on 6 April 2011, and is an unincorporated charity governed by a declaration of trust dated 5 April 2011 (‘the governing document’).

The charity’s objectives are:

• the relief of poverty amongst persons in need and hardship in particular but not exclusively in the Jewish community
• the advancement of education according to the beliefs and values of the orthodox Jewish faith
• the advancement of the Jewish orthodox religion

The charity’s details can be found on the register of charities (‘the register’).

The Trustees

Elli Goldberg (“Trustee A”) became a trustee on 6 April 2011 and is still a trustee.

Nechamah Goldberg (“Trustee B”) became a trustee on 17 March 2011 and is still a trustee.

Shoshana Reizel Wieser (“Trustee C”) became a trustee on 6 April 2011 and resigned as a trustee on 21 November 2018.

Yehudah Wosner (“Trustee D”) became a trustee on 21 November 2018 and is an un-conflicted trustee.

Trustee A and Trustee B are related to each other which means that they are likely to share conflicts of interest. Trustee C (who has resigned) was related to Trustee A and Trustee B which meant it was likely they shared conflicts of interest.

Background

On 20 September 2013, the Charity Commission (‘the Commission’) opened a statutory class inquiry, under section 46 of the Charities Act 2011 (‘the Act’), into charities in default of their statutory obligations by failing to submit their annual documents for 2 or more years in the last 5 years and met certain other criteria including that;

• the charities were recently given final warnings to comply by a specified date
• on the day after the specified date they were still in default (partially or otherwise)

At the point a charity met the criteria they would become part of the inquiry. Charities that have been identified for inclusion in the class inquiry have a last known annual income of at least £150,000. (‘the class inquiry’).

The Charity, having failed to submit its annual accounting information for the financial year ending (‘FYE’) 31 March 2014 and 31 March 2015, became part of the class inquiry on 2 June 2016.

The outstanding accounting information was submitted to the Commission on 31 January 2017, and the charity ceased to be part of the class inquiry on the same day.

The Commission published a statement of the result of the inquiry into the charity on 3 May 2017.

Despite having been sent a number of reminders from the Commission to submit its annual documents ahead of the deadline for the FYE 31 March 2016, the charity’s trustees failed to comply with their statutory obligations for the third consecutive year by failing to submit the required annual documents to the Commission by the due date.

Consequently, on 23 May 2017, the Commission opened a statutory inquiry into the charity, under section 46 of the Act.

Issues under Investigation

The inquiry examined the following issues:

• the extent to which the trustees were complying with their legal duties in respect of their administration, governance and management of the charity, and in particular their compliance with legal obligations for the preparation and filing of the charity’s accounts and other information or returns
• the extent to which the trustees have complied with previously issued regulatory guidance

The inquiry closed with the publication of this report.

Findings

The extent to which the trustees were complying with their legal duties in respect of their administration, governance and management of the charity

The preparation and submission of the charity’s annual accounts and financial statements

The inquiry found the trustees had failed to comply with their statutory obligations to submit the charity’s annual accounts and financial statements for the FYE 31 March 2016. The trustees were also in breach of the governing document for their failure to submit the charity’s annual accounts and financial statements.

The inquiry issued an order in accordance with section 84 of the Act, directing the trustees to prepare and submit the outstanding accounting information by 7 July 2017. The trustees complied with the order and submitted the outstanding information by the deadline.

The management of conflicts of interest within the board of trustees

The inquiry found that the charity does not have in place an adequate and appropriate conflicts of interest policy. The trustee board had three members, who were related to each other, and are likely to share any conflicts of interest which the charity will be unable to manage effectively. During the course of the inquiry, trustee C resigned and was replaced by an independent trustee; trustee D. Despite this there still remains the possibility that a conflict of interest may arise between trustees A and B, therefore an appropriate and adequate conflict of interest policy is required.

Formal meetings of the board of trustees and the making and recording of decisions by the board of trustees

The inquiry found that the trustees failed to conduct formal trustee meetings and keep adequate minutes in accordance with the charity’s governing document.

The inquiry reviewed the charity’s accounts and noted that the charity trustees had entered into 2 interest free loans. These loans were used to purchase properties for investment purposes despite the fact that the charity did not have an investment policy.

Borrowing money to invest in property was a significant decision for the charity; the inquiry found that the trustees had only obtained informal advice in respect of the loans and investments.

The first loan was essentially bridging finance for a period of 6 months and was due to be repaid when the charity had obtained a 100% mortgage on the property it had bought with the money. The trustees did not make a mortgage application and the property was transferred to a third party, at the request of the lender, at the conclusion of the 6 month period.

The second loan was made on the basis that the charity would purchase a property and then sell it at a profit within 6 months and repay the loan in full. If this was unsuccessful there were no alternative financial arrangements in place to repay the loan, which is currently still outstanding.

The inquiry found that, the trustees had failed to comply with the requirements of proper trustee decision making when deciding to enter into these loans and invest the money in property.

When making decisions trustees must consider their powers, act in good faith, make sure they are sufficiently informed, take account of all relevant factors, ignore relevant factors, manage conflicts of interest and make decisions that are in the range of decisions that a reasonable trustee body could make. There is no record of the trustees’ decision making in respect of these investments so it is unclear whether they considered all relevant factors.

However, they did not obtain independent professional advice as would be expected when making such a significant decision. Accordingly the inquiry found that the trustees had failed to act reasonably, and prudently in accordance with the trustee duties as set out in CC3 – The Essential trustee: what you need to know, what you need to do, and had consequently subjected the charity’s assets to undue risk.

The inquiry further found the trustees had failed to properly record the informal advice obtained, as required by the charity’s governing document.

The extent to which the trustees have complied with previously issued regulatory guidance

The trustees had been made aware of their duty to submit accounting information on time when the charity was included in the double defaulter’s class inquiry. The inquiry found that the trustees failed to follow regulatory advice and guidance and defaulted on the submission of the accounting information FYE 31 March 2016.

The inquiry acknowledges that the trustees did submit the accounting information for the FYE 31 March 2017 before the statutory deadline.

Conclusion

The inquiry found that there was evidence of misconduct and/or mismanagement in the charity’s administration. The trustees had not complied with or fulfilled their duties as trustees under charity law as:

• the trustee had failed to file their annual accounting information, in accordance with their statutory obligations, on time
• the trustees have failed to ensure that conflicts of interest can be effectively managed
• the trustees failed to comply with the terms of the charity’s governing document in relation to holding meetings
• the trustees failed to obtain professional advice during their decision making process and to properly record the decisions made

Whilst the trustees demonstrated a commitment and willingness to put matters right in respect of the charity’s future filing obligations, the inquiry concluded that there was evidence of poor financial management and governance in the charity. The Commission decided the issuing of an Official Warning to the trustees would allow these specific regulatory concerns to be addressed within a clear timescale.

Regulatory action taken

On 23 June 2017, the inquiry made an order in accordance with section 84 of the Act to direct the trustees to prepare and submit the outstanding annual accounts and financial statements for the FYE 31 March 2016.

On 3 July 2017 the inquiry issued a direction, under section 47 of the Act, to the trustees for them to answer questions and provide copies of documents and statements.

On 18 July 2017 the inquiry used its information gathering powers and made an order, under section 52 of the Act, to obtain copies of the charity’s bank statements. They were used in connection with the scrutiny of the charity’s financial records.

On publication of this inquiry, an Official Warning was issued under section 75A(1)(a) of the Act to the trustees. The trustees are expected to undertake the outlined actions, within 6 months, as set out in the Official Warning, to rectify the regulatory concerns.

The Commission will monitor the charity’s progress and intends to open a monitoring case in the near future. The Commission expects the trustees to have completed the specified actions within 6 months from the date the Official Warning is issued.

The Official Warning was published on the Commission’s website, and will remain for a period of 1 year.

Issues for the wider sector

Principles of trustee decision making

Charity trustees are responsible for governing their charity and making decisions about how it should be run. Making decisions is one of the most important parts of the trustees’ role. Trustees can be confident about decision making if they understand their role and responsibilities, know how to make decisions effectively, are ready to be accountable to people with an interest in their charity, and follow the 7 principles that the courts have developed for reviewing decisions made by trustees.

Trustees must:

• act within their powers
• act in good faith and only in the interests of the charity
• make sure they are sufficiently informed
• take account of all relevant factors
• ignore any irrelevant factors
• manage conflicts of interest
• make decisions that are within the range of decisions that a reasonable trustee body could make

It is important that charity trustees apply these 7 principles when making significant or strategic decisions, such as those affecting the charity’s beneficiaries, assets or future direction.

Further information can be found in the Commission’s guidance It’s your decision: charity trustees and decision making (CC27)

Trustees are responsible for the overall management and administration of the charity. They should be decisive, take responsibility and be accountable for controlling their charity. They should be able to devote sufficient time to enable them to play a full role. It is important that decisions concerning the charity are taken by the trustees acting together as they are jointly responsible. A charity is entitled to the independent and objective judgment of each of its trustees, acting solely in the best interests of the charity.

Conflicts of interest

Conflicts of interest are more likely when there are only a small number of trustees on the board, when trustees are closely related, or when the charity has dealings with organisations in which the trustees have interests. It is vital that trustees avoid becoming involved in situations in which their personal interests may be seen to conflict with their duties as trustees. The trustees should put in place policies and procedures to identify and manage such conflict.

Further guidance and advice on conflicts of interest can be found on GOV.UK.