Decision

Grangewood Educational Association

Published 15 August 2019

This decision was withdrawn on 18 January 2022

This Inquiry report has been archived as it is over 2 years old.

A statement of the results of an inquiry into Grangewood Educational Association, registered charity number 803492 (“the charity”)

The charity

Grangewood Educational Association was incorporated on 24 October 1989. It is governed by a memorandum and articles of association which was amended by special resolutions dated 17 December 1991 and 11 November 2016.

The objects of the charity are “to promote and provide for the advancement of education in accordance with the doctrines and principles of the Christian faith and in connection therewith to conduct, carry on, acquire and develop in the United Kingdom any boarding or day school or schools for the education of children of either sex or both sexes.”

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

Issues under Investigation

The charity has furthered its objects through the operation of Grangewood Independent School (GIS), a primary school situated in Chester Road, Forest Gate, in the London Borough of Newham.

In March 2018, the commission received a number of documents claiming that there had been a prolonged period of financial instability at the charity, the sole trustee had acted inappropriately and the parents had been abruptly notified that the school was closing.

Upon clarification of these claims the following was established:

• the quorum for decisions within the charity is three. The charity was therefore inquorate following the death of one trustee in December 2017 and the resignation of another in February 2018
• the charity had also been inquorate for periods of time prior to that and one such period had coincided with the charity undertaking a Company Voluntary Arrangement in 2014 – the charity had experienced financial difficulty which resulted in the sale and lease back of the charity’s school building in 2015
• an educational advisor’s report had been commissioned by the sole trustee of the charity, which in February 2018 concluded that the charity would be insolvent by December 2018
• the closure of the school had resulted in an occupation of the school building by the parents of the children attending the school, former pupils and staff and friends of the school, and this had attracted significant media coverage – the sole trustee instructed legal advisors to act for the charity who then pursued an interim Possession Order against the parents who were still in occupation
• the sole trustee had been in receipt of funds from the charity which had not been properly authorised
• the sole trustee had little understanding of the role and legal obligations of a trustee of a charity

A preliminary inquiry assessment was undertaken by the commission during March and April 2018. A meeting took place on 9 April 2018 between the commission, the sole trustee, the educational advisor (who had written the report upon which the sole trustee based his decisions), the charity’s legal representatives and an accountant engaged by the sole trustee.

A telephone conference took place on the 11 April 2018 with the charity’s governors, the Head Teacher, some of the teachers and the school Business Manager. Additionally, the commission also engaged with the Department for Education – Independent Schools Department.

The conclusion of this preliminary inquiry assessment was that the matters involved were so serious that a statutory inquiry should be opened. The statutory inquiry commenced on 15 April 2018.

The inquiry examined the following charity regulatory issues:

• the governance, management and administration of the charity by the trustees, with particular regard to:
  • the extent to which the trustees had complied with the governing document of the charity
  • the financial control and management of the charity
  • whether the trustees had avoided or adequately managed potential conflicts of interest
  • the extent to which the trustees complied with the requirements of the Charities Act when disposing of the charity’s property in 2015
  • decisions regarding the charity’s future
• whether connected party transactions and remuneration to trustees had been properly authorised.

The inquiry was closed with the publication of this report.

The findings of this report have been put to all affected trustees and all comments and representations made by them have been considered and responded to by the inquiry.

Findings

Following a detailed review of the events leading to the planned closure of the school, it was decided by the commission that in the interests of the beneficiaries attending the school and expecting to sit Standard Assessment Tests (SATs) at the end of the following term an Interim Manager should be appointed, to the exclusion of the sole trustee, to oversee the running of the charity until the end of the 2018 academic year.

The interim managers were in place from the 26 April 2018 until the 31 August 2018, the statutory inquiry ran concurrently with the term of the Interim Managers.

The governance, management and administration of the charity by the trustees

The inquiry found that, in breach of its governing document, the charity was inquorate for the following periods:

• 1 January 2014 to 19 September 2016
• 31 December 2017 to 24 April 2018

During the following periods, the Charity had a sole trustee:

• 1 January 2014 to 16 April 2015
• 21 April 2015 to 31 March 2016
• 12 February 2018 to 24 April 2018

The inquiry found that the following actions were taken in relation to the governance, management and administration of the charity when the charity was inquorate with only one trustee in position:

• on 16 December 2014, the charity entered into a Company Voluntary Arrangement
• on 21 December 2015, the Charity’s premises were sold
• on 2 March 2018, parents were notified that GIS was in difficulty and may be closing
• on 26 March 2018, the parents were notified that the school would be closing at the end of that term, two days later

The inquiry found that the breakdown in communication between the sole trustee and the Business Manager led to conflict that had a negative effect on the running of the school. A problem with accessing the online banking led to money being paid directly into the trustee’s personal bank account, part of which was then used to settle debt of a personal nature. Charity funds were therefore misapplied.

The inquiry was supplied with a report produced by the educational advisor, and presented to the school’s Governing Board on 7 February 2018. It advised that the school was unsustainable in its current form and unpaid fees and a reduction in the school roll were significant factors.

It recommended that the commission should be notified of this position as soon as possible.

The commission was notified of the closure of the school on 14 March 2018, 12 days after the parents had received a notification. The inquiry found that the school was closed 14 days later. At that time there were 45 children on the roll attending lessons and no provision had been made by the trustees for parents to identify other schools for their children to attend.

At the commencement of the inquiry the charity’s legal advisors began legal proceedings to obtain an interim Possession Order, and made an application to the commission under s105 Charities Act 2011 (requesting the commission authorise that action).

On 23 April 2018, the commission confirmed to the charity’s solicitors that the charity was inquorate and that the sole trustee was unable to make valid decisions on behalf of the charity.

The charity’s solicitors were informed that, in these circumstances, the commission was not in a position to respond to the application under s105. The proceedings were discontinued and the costs incurred to that date were negotiated by the Interim Managers and are listed below.

Whether connected party transactions and remuneration to trustees had been properly authorised

The inquiry found that a loan of £5,000 had been advanced to the sole trustee when the charity had been quorate in 2017. The inquiry found that it was unlikely that the amount would be repaid to the charity. Charity funds had also been used to settle debts which were the personal liability of the sole trustee.

The inquiry found that poorly documented expense claims had been made by the charity’s three most recent trustees during 2016 and 2017 and in the first quarter of 2018 and the expense claims were not disclosed in the charity’s accounts.

Published accounts for the financial year ending 31 August 2017, state that no remuneration was paid and no expenses were reimbursed to any of the trustees but the charity’s financial records show that the trustees received cash and assets in excess of £31,905 during the period.

The sole trustee was not reappointed as a trustee of the charity and so ceased to be a trustee from 23 July 2018. The school continued to function throughout the period of the appointment of the Interim Managers and the statutory inquiry and remains fully functioning.

Conclusions

The commission has concluded that there had been serious mismanagement and/or misconduct in the charity’s governance, management and administration, and in the treatment of connected party transactions.

The commission concluded that the sole trustee acted in haste when making decisions relating to the closure of the school, without considering the consequences of those actions on the charity beneficiaries. The sole trustee admitted to the inquiry that he did not have an understanding of the responsibilities of the role of a trustee and the legal and administrative responsibilities that are involved in this role.

Due to the appointment of new trustees on 29 August 2018 and their subsequent satisfactory engagement with the interim manager, the commission concluded that with adequate due diligence, monitoring and risk management procedures put in place by the interim manager and adopted by the trustees, there was no longer an ongoing risk to the charity or its assets, and no further regulatory action was necessary.

Regulatory action taken

On 16 April 2018 an Order under s76(3)(d) Charities Act 2011, not to part with property, was served on the charity’s bank.

On the 26 April 2018 under Section 76(3)(g)of the Charities Act 2011 the Commission appointed Geoff Carton-Kelly and Jason Daniel Baker of FRP Advisory as Interim Managers. The Interim Managers were granted all the powers and duties of the trustees of the charity to the exclusion of the current trustee(s) of the charity.

Final costs (excluding VAT) associated with the appointment of the Interim Managers were as follows:

IM fees	£60.000
Disbursements	£752.27
Legal fees relating to aborted Possession Order	£16,246.00
Legal fees relating to redundancies	£3,757.80

On 6 June 2018 the Order under s76(3)(d) Charities Act 2011, not to part with property, served on 16 April 2018, was revoked.

On 4 July 2018 a Direction under s47 Charities Act 2011 was served on the charity’s sole trustee to provide information and documents to assist the statutory inquiry. This Direction was complied with.

On 31 August 2018 the Order under s76(3)(g) Charities Act 2011, appointing Interim Managers to the charity served on 26 April 2018, was revoked and the interim managers were discharged from their role.

On 7 February 2019 an Order under s84 Charities Act 2011 was served on the charity to compel the trustees to submit outstanding annual accounts, the annual return and the trustees’ annual report for the year ended 31 August 2017. This Order was complied with.

On 7 February 2019, an undertaking was received from the former sole trustee that they would not accept a trusteeship for a charity or any charities for a period of ten years from that date.

Issues for the Wider Sector

All charities must make quorate decisions in order to comply with their governing documents.

A lack of knowledge of charity law and regulation is no defence for a failure to comply.

All charities must have an effective trustee body to protect assets, control and administer the charity in accordance with a charity’s own governing document, charity law and commission guidance.

Public trust and confidence depends on the conduct of trustees and how they safeguard charity funds and undertake the objects and activities of the charity.

Where trustees are unable to undertake functions and obligations themselves, they must ensure that appropriate advice is taken and followed. In doing this, they must:

• act within their competence and 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 and ignore irrelevant factors
• manage conflicts of interest
• make decisions that are within the range of decisions that a reasonable trustee body could make

All charity trustees must ensure that, unless specific exemptions apply, an annual report and annual return and annual accounts, in respect of each financial year, are submitted to the regulator of charities.

Trustees should be aware that the regulation of charities is a separate matter to the regulation of corporate bodies. Rules relating to expense claims show that an exacting standard is required by the Charity Commission for England and Wales and this supersedes the standard specified by other regulators.