Decision

Charity Inquiry: Christ Apostolic World Soul Winning and Evangelistic Ministry

Published 18 December 2020

This decision was withdrawn on 6 January 2023

This report has been archived in line with our policy as it is over 2 years old.

Applies to England and Wales

The charity

Christ Apostolic World Soul Winning and Evangelistic Ministry (“the charity”) was registered with the Charity Commission (“the Commission”) on 2 November 1992. The charity is governed by a constitution adopted on 1 July 1992 as amended on 17 October 1992 (“the Governing Document”). The charity’s objects are the advancement of Christian religion and to promote charitable work for the benefit of the poor.

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

Issues under Investigation

On 16 September 2013, the Commission opened a regulatory compliance case (“the investigation”) due to concerns raised about a bridging loan taken by the trustees in 2010.

The investigation was told that the loan was taken out for the purpose of refurbishing the charity’s church (‘the property’). The investigation found, as a result of the bridging loan and subsequent litigation, that the total amount due to the bridging loan company (“the loan company”) was £1,533,144.

On 19 February 2015, an inquiry was opened the charity to investigate;

• whether or not the former trustees/current trustees of the charity have discharged/are discharging their duties and responsibilities as charity trustees
• whether or not and to what extent, there has been mismanagement and/or misconduct on the part of those acting in the administration and management of the charity
• the possible misappropriation or misapplication of the charity’s funds
• the future governance of the charity given the potential inability of the current trustees to manage and administer the charity in accordance with its governing document

The inquiry closed with the publication of this report.

Findings

Whether or not the former trustees/trustees of the charity have discharged/are discharging their duties and responsibilities as charity trustees and to what extent, if any, there has been mismanagement and/or misconduct on the part of those acting in the administration and management of the charity

The inquiry found that the former trustees entered into a six-month bridging loan agreement in June 2010, but the charity only received £35,000 of the £250,000 funds drawn down and these trustees failed to take adequate steps to locate and recover the remainder.

The loan matured on 17 December 2010, but the former trustees defaulted on repayment and on 14 April 2011, the property was taken into the possession of the loan company. The former trustees challenged the action of the loan company.

On 8 March 2012, whilst the ownership of the property was being disputed by the former trustees, a fire completely destroyed the building. The inquiry has seen no evidence of a buildings insurance policy having been in place for the property and as a result of the fire all the charity’s records inside were destroyed. The property was not rebuilt and the land was sold by the loan company on 1 October 2013.

The legal action taken by the former trustees in 2011, which continued until at least 2014, increased the charity’s liability with the loan company. As a result, when the loan company sold the charity’s land in October 2013 for £1.2 million, they said the charity was not entitled to any of the proceeds.

Reporting Serious Incidents

The Commission requires charities to report serious incidents. Most problems can be resolved by the trustees themselves, in some cases with timely advice from professional advisers. However, all trustees bear ultimate responsibility for ensuring their charity makes a report and does so in a timely manner. This means the Commission will be looking for assurance that the charity has taken steps to limit the immediate impact of the incident and, where possible, prevent it from happening again.

The inquiry noted that the Commission had not received any serious incident reports in respect of the charity’s defaulting on loan repayments, repossession of the property and the subsequent legal action. Only when the investigation questioned this on 21 January 2014 was a serious incident report about these particular issues submitted on 24 February 2014.

The inquiry found the former trustees’ failure to submit timely serious incident reports prevented the Commission from considering how these trustees were managing them or whether any guidance was required. The delay also prevented the Commission from conducting a timely investigation into any of the events.

The failure by the former trustees to report serious incidents in accordance with their legal duties and responsibilities, until prompted in January 2014, is considered to be mismanagement and/or misconduct in the administration of the charity.

Trustee decision making with regards to the loan

Trustees must take special care when borrowing money and must not over-commit the charity or take inappropriate risks with the charity’s assets. The Commission expects trustees to make decisions, acting responsibly, reasonably and honestly and to exercise sound judgement.

The inquiry found that only three of the four former trustees registered with the Commission at the time were involved in the loan arrangements and only they signed the loan agreement. One of these trustees has passed away and the former Chair of the trustees told the inquiry the fourth trustee was not involved, because she was abroad at the time.

The two remaining former trustees, who were involved with the loan, were interviewed by the inquiry. They said they had relied on the advice of a financial broker (“the broker”) who then took full responsibility for sourcing the loan, which was required to refurbish and develop the charity’s property.

The former Chair of trustees told the inquiry the broker had been introduced to them by another church member, but he said they had failed to carry out any background checks on him, there was no contract and the inquiry has seen no evidence of written instructions.

The former Chair of the trustees said the broker had been unsuccessful in sourcing a bank loan. He said the broker had told him one bank he had approached had told him they would not loan the charity money because they did not know how it could be repaid.

The former trustees told the inquiry the broker had then sourced a bridging loan, but prior to signing the agreement they had not been comfortable with this type of loan due to high rates of interest. However, they did not seek any independent advice or approach any banks themselves for loans.

The two former trustees said they signed the bridging loan agreement without seeing the terms and conditions. They said they were told they would receive the terms and conditions during a seven-day cooling off period.

The former Chair of the trustees said he never saw the terms and conditions, as he thought he had probably personally gone abroad during the cooling off period. He assumed another former trustee, who was UK based, would check them, but she told the inquiry she only saw the terms and conditions after the loan company started proceedings to take possession of the charity’s property.

The loan company provided a copy of the loan agreement to the inquiry, which included a declaration signed by three of the former trustees. This confirmed they had read and fully accepted the terms and conditions.

The loan company also provided a ‘side letter’, which appears to have been signed by these trustees as well, in which ‘knowing they intended to repay the loan by selling or refinancing the property’ the loan company drew the former trustees attention to the difficulties, at the time, of selling properties or raising funds by way of re-mortgage.

Although the former Chair of trustees said they were not received, the loan company provided copies of letters sent to the former trustees by their agents, dated 20 December 2010. The letters informed these trustees that the loan had matured and, if they failed to pay the redemption, which the loan company said was £275,000 at the time of maturity, proceedings for possession of the property would be issued in the County Court. The loan company told the inquiry the former trustees defaulted on the repayment and they took possession of the property.

The inquiry learned the former trustees entered into litigation to try to recover the property. The former Chair of the trustees told the inquiry that the charity’s lawyer advised him that the cost of litigation was likely to run to several hundred thousand pounds. However, the former Chair of the trustees did not see this as a risk because he was confident the charity would win the case.

The loan company provided the inquiry with copies of Court rulings that deemed some proceedings the former trustees brought against it to be without merit. The loan company told the inquiry that the interest and liability of the charity to pay the loan company’s legal costs had increased the charity’s liability to £1,533,144.

Therefore, even though only £250,000 was drawn down, the £1.2 million proceeds of sale of the charity’s land, after the property was destroyed by fire, were insufficient to pay the balance. Accordingly, no money was paid to the charity.

The inquiry found a lack of sound judgement by the former trustees in their decision making led them to take inappropriate risks, which ultimately resulted in the total loss of the property, which was the charity’s most valuable asset. This is considered to be mismanagement and/or misconduct in the administration of the charity by the former trustees.

The possible misappropriation or misapplication of the charity’s funds

Trustees have a legal duty to safeguard charity assets. The implementation of adequate internal financial controls is important to manage financial risks.

The former trustees told the inquiry the charity only received £35,000 of the £250,000 funds drawn down. They said this was used to repair the roof of the property.

The loan company told the inquiry £191,950 of the funds were paid to an account in the name of the solicitors acting for the former trustees. £41,250 was retained by the loan company to cover 6 months’ interest, legal fees and bank charges and the remainder covered the broker and loan facility fees.

The former Chair of the trustees told the inquiry, during the legal proceedings they discovered the solicitors received £188,858 of the loan funds and the majority of this was paid to five companies they had not previously heard of.

The inquiry established a link between only one of the five companies and the charity. Wosem Communities Development, believed to be a subsidiary of the charity, received £35,000, which is believed to have been used to repair the roof. The inquiry found that it was not possible to establish the end use of the remainder of the loan funds that were drawn down.

The Commission does not investigate crime or prosecute offenders because this is the responsibility of other agencies, like the police. The inquiry learned the police investigated allegations the former trustees made, in respect of the the loan arrangements and the absent funds, but the police decided there was insufficient evidence to proceed.

The inquiry found, irrespective of whether the balance of the loan funds had been used in support of the charity’s objects or misspent, if the former trustees had ensured adequate financial controls were in place, they would have been able to account for all of the loan funds, or could have identified their absence and taken timely steps to locate them.

The future governance of the charity given the potential inability of the current trustees to manage and administer the charity in accordance with its governing document

During the course of the inquiry additional trustees were appointed. The inquiry met with the new Chair of the trustee board and pointed out the serious nature of the events that led to the loss of the property. The inquiry issued an action plan to the new trustees under section 84(2) of the Act, to put measures in place to protect the charity going forward.

The new Chair of the trustees told the inquiry that that one of the former trustees had passed away the two others involved in the loan agreement had resigned. The fourth former trustee, who was said not to be involved in the loan, could not be contacted by the new trustees and was subsequently removed from the register by them.

On 26 February 2020 the inquiry used its powers under section 181A of the Act to make an Order to disqualify Pastor Paul Obadare, the former Chair of the trustees, from being a charity trustee or holding senior management positions in charities in England and Wales for a period of 10 years. The disqualification became effective on 9 April 2020.

Having accepted its guidance, the inquiry is satisfied the new trustees are acting in the best interests of the charity and have made significant progress with the limited assets now available.

Conclusions

The Commission concluded that the former trustees’ failure to submit timely serious incident reports prevented it from considering how these trustees were managing them and whether there was a need to provide any guidance. This amounted to misconduct and / or mismanagement in the administration of the charity.

The Commission concluded the former trustees failed in their duty of prudence to the charity. They did not act responsibly or reasonably when borrowing money and their acts and omissions led to the loss of the charity’s property. This amounted to serious misconduct and / or mismanagement in the administration of the charity.

The Commission concluded, because the former trustees failed to put in place adequate financial controls, it was not possible to establish the end use of the majority of loan money to which the charity was entitled. This amounts to misconduct and / or mismanagement of the charity.

The Commission concluded that the former trustees are no longer involved in the Governance or management of the charity and the new trustees are acting in its best interests and taking steps to put it back on a level footing.

Regulatory Action Taken

The inquiry used its information gathering powers under sections 52 and section 47 of the Act.

The inquiry met with two of the former trustees to investigate the serious incidents.

The inquiry met with the new Chair of trustees to provide guidance and used its power under section 84(2) of the Act to direct the new trustees to complete an action plan.

The inquiry used its powers under section 181A of the Act to disqualify Pastor Paul Obadare from being a charity trustee or holding senior management positions in charities in England and Wales for a period of 10 years

Issues for the wider sector

A serious incident is an adverse event, whether actual or alleged, which results in or risks significant:

• harm to your charity’s beneficiaries, staff, volunteers or others who come into contact with your charity through its work (who are collectively referred to throughout this guidance as people who come into contact with your charity through its work)
• loss of your charity’s money or assets
• damage to your charity’s property
• harm to your charity’s work or reputation

A serious incident should be reported to the Commission immediately, not just on completion of the annual return.

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 seven principles that the court has 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 seven principles when making significant or strategic decisions, such as those affecting the charity’s beneficiaries, assets or future direction.

Trustees must ensure that their charity has adequate financial controls in place, It is important that the financial activities of charities are properly recorded, and their financial governance is transparent. Charities are accountable to their donors, beneficiaries and the public. Donors to charity are entitled to have confidence that their money is going to legitimate causes and reaches the places that it is intended to, this is key to ensuring public trust and confidence in charities. In this case there was no clear audit trail for the use of the loan funds.

The Commission has produced guidance to assist trustees in implementing robust internal financial controls that are appropriate to their charity. Internal Financial Controls for Charities (CC8) is available on the Commission’s website. There is also a self-check-list for trustees which has been produced to enable trustees to evaluate their charity’s performance against the legal requirements and good practice recommendations set out in the guidance.