Decision

Nottinghamshire Miners Home (formerly a registered charity)

Published 17 May 2019

This decision was withdrawn on 18 January 2022

This Inquiry report has been archived as it is over 2 years old.

The charity

Nottinghamshire Miners Home (‘the charity’) was registered with the Charity Commission (‘the Commission’) on 25 September 1969. It was governed by a Commission scheme (‘the governing document’), dated 24 September 1999 as amended by resolution dated 2 August 2013.

The governing document provided for up to five charity trustees to manage and administer the charity, three being nominated by the Union of Democratic Mineworkers Nottingham Section (‘UDMNS’) who could co-opt a further two at their discretion. At the time the Commission’s inquiry was opened, only the three trustees nominated by UDMNS (‘Trustees A, B and C’) were appointed.

The objects of the charity (taken from the Commission scheme) are:

(1) The relief of poverty by;

(a) providing residential and nursing care by means of a home for persons who are sick, convalescent, disabled, handicapped or infirm and who are or were also workers in or about coal mines, or the wives, widows or other dependants of such persons likewise qualified, with a preference for persons connected with the Nottinghamshire area coal field.

(b) making grants of money to the beneficiaries or providing or paying for goods, services or facilities for them, or making grants of money to other persons or bodies who provide goods, services or facilities to those eligible for assistance.

(2) If and in so far as the income of the charity cannot be applied towards the objects specified in clauses (1) (a) and (b) above, the trustees may apply it in furthering the objects of the following charities:-

(a) The Union of Democratic Mineworkers’ Nottingham Section Welfare and Convalescent Fund (328065),

(b) The Nottinghamshire Miners’ Welfare Convalescent Fund (259689), or

(c) The Edwinstowe Physiotherapy Clinic (1069826).

The charity was removed from the register of charities (‘the register’) on 18 January 2017.

The inquiry into the charity was closed with the publication of this report.

The length of the inquiry has been affected by:

• criminal proceedings against former charity trustees
• the recovery of funds owed to the charity through the Proceeds of Crime Act 2002 (‘POCA’)
• determining the most appropriate method of applying the charity’s residual funds

This is explained in more detail in the section titled ‘conduct of the inquiry’.

Background to the issues under investigation

The charity owned a care home at Ancaster Avenue, Chapel St Leonards, Lincolnshire, which it leased to Phoenix Nursing and Residential Home Ltd, the charity’s trading subsidiary. The trading subsidiary administered the home on behalf of the charity and had two directors, who were also trustees of the charity (Trustees A and B).

A trading subsidiary in this context is a company, owned and controlled by one or more charities, usually set up to carry on a trade on behalf of the charity (or charities). The function of a trading subsidiary is to benefit a charity or charities in some way. This is usually by the subsidiary generating income for its parent charity (or charities) typically through commercial activities

In July 2007, a solicitor acting for the charity contacted the Commission about the charity’s intention to sell the care home, which it was estimated would generate over £1.5 million. The sale was proposed because it was claimed that due to the decline of the mining industry the care home was at best only managing to break even and no longer catered for mineworker beneficiaries.

As a result, the directors of the trading subsidiary and the charity’s trustees no longer considered the care home to be a viable going concern, as it was not operating to its full potential or in direct furtherance of its charitable objects.

The Commission at that time provided the charity with regulatory advice on the disposal of the home. Shortly after, the Serious Fraud Office (‘SFO’) raised concerns with the Commission about the management and administration of the charity, prompting a meeting with the SFO in August 2007.

The SFO informed us that issues had arisen during its investigation into suspected fraud by individuals associated with the charity, surrounding fees arising from a miners’ compensation scheme and other industrial disease claims. The SFO considered the charity, as well as associated subsidiary companies and ultimately the UDM as victims of the suspected fraud.

The SFO’s investigation raised concerns that the funds of the charity’s trading subsidiary were being used for the private benefit of Trustees A and B and their families. The SFO was concerned that the substantial sale proceeds of the care home could also be at risk of being diverted for similar private benefit.

The Commission reviewed all available information and, given the seriousness of regulatory concerns, opened a statutory inquiry under the Charities Act 2011 (‘the act’) on 13 August 2007.

At the time, the inquiry was opened under Section 8 of the Charities Act 1993 (the act) so some powers and legislation referred to in this document are under that act. Statutory inquiries are now opened under Section 46 of the 2011 act.

All three trustees were informed of the opening of the inquiry, two days later.

Issues under investigation by the inquiry

The inquiry was opened to examine serious regulatory concerns about the governance and management of the charity, including the effectiveness of how the trustees were discharging their legal duties.

The inquiry therefore considered the following specific matters:

• whether the charity’s investment in the care home was properly safeguarded, its sale complied with legal requirements and the trustees’ associated decision-making was reasonable and in the charity’s best interests
• whether the charity had been used for unauthorised private benefit and/or whether charity funds had been misapplied/misappropriated (the initial scope of the inquiry did not include the misappropriation of funds to minimise overlap with the SFO investigation. The inquiry scope was later modified after further liaison with the SFO in September 2007)
• whether the charity’s administration, governance and management by the trustees was effective and in accordance with charity law

Conduct of the Inquiry

Initial information gathering and exercise of temporary and protective powers

The inquiry used the Commission’s information-gathering powers between September 2007 and December 2008 to further its investigation, obtaining information/copy documents from the banks of the charity and its trading subsidiary, the trustees and the charity’s accountant.

In September 2007 the inquiry placed legal restrictions on the charity’s bank accounts and those of its trading subsidiary, to prevent charitable funds being withdrawn without the Commission’s prior written consent. The inquiry placed additional legal restrictions on the charity’s solicitor, to prevent the sale proceeds of the care home being applied without the Commission’s prior consent. The sale of the care home was completed on 26 September 2007, generating net proceeds for the charity of approximately £1.6 million.

The inquiry also ordered the trading subsidiary not to enter into any personal transactions with trading subsidiary directors without the Commission’s prior written consent.

As a result of its investigations the inquiry took regulatory action to suspend trustees A and B in February 2008.

In June 2008, the inquiry appointed Michael King of Stone King LLP, solicitors, as Interim Manager (IM), to exclusively administer the charity.

The IM paid off the charity’s historic loans of approximately £535,000 owing to organisations connected with the UDM, so that the net funds belonging to the charity at the close of 2010 were approximately £1.06 million.

Collaboration with other regulators

The inquiry continued to liaise with the SFO and South Yorkshire Police (SYP) (which was operating a joint investigation with the SFO) and postponed taking any regulatory or other action until the conclusion of the SFO/SYP investigation in March 2010, to avoid prejudicing it. In July 2010, SYP and Crown Prosecution Service informed the inquiry it intended to prosecute Trustees A and B.

The inquiry continued to postpone its involvement in relation to the charity, until after the outcome of the prosecution hearing. The inquiry provided two witness statements for prosecution purposes and a Commission representative gave evidence at the hearing in March 2012.

Outcome of the hearing

Trustee A was convicted in April 2012 upon indictment of 14 counts of theft and was sentenced to 4 years imprisonment. He was thereby automatically disqualified from being a trustee of any charity in England and Wales and our further proposed action to remove him as a trustee was therefore unnecessary.

Trustee B was found not guilty but this judgement did not alter the inquiry’s assessment of his misconduct and/or mismanagement in the administration of the charity. The threshold for charity and civil law is based on balance of probabilities rather than the threshold of beyond reasonable doubt required for a criminal conviction.

However, the inquiry took the view that as the term of Trustee B’s trusteeship had lapsed under the relevant provisions of the charity’s governing document, further action to facilitate his removal was unnecessary. The trusteeship of the charity’s remaining trustee, Trustee C, had also lapsed, as per the governing document provisions. Although he had not been involved in the hearing and the inquiry found no evidence that he had misappropriated any charity funds, his lapse in trusteeship meant he was no longer a validly-appointed trustee of the charity.

With the conviction and consequent disqualification of Trustee A and the lapse in trusteeship of Trustee B and Trustee C, new trustees needed to be appointed to return the charity to a proper footing and enable the inquiry to discharge the IM.

The inquiry decided however that the IM should remain in place at least until the courts had considered the payment of compensation by Trustee A to the charity, as the IM would be best-placed to consider restitution, in the event a compensation order was not made, or if there remained a real prospect of successfully seeking restitution over and above any compensation award.

As a result the IM remained from April 2012 in sole control of the charity. He considered whether to pursue Trustees A and B in the civil courts for breach of trust in that they benefitted from the sum of £150,000 in respect of which Trustee A alone was convicted of theft in Nottingham Crown Court.

In the event the IM decided to make a claim through the criminal court under the Proceeds of Crime Act 2002 and on 13 December 2012, Trustee A was ordered by Nottingham Crown Court to pay £201,327.51 compensation to the charity, to include interest of £51,327.51, as calculated under court rules. This compensation was received by the charity in February 2013.

Trustee B later claimed to the IM that, since he had been found not guilty of the charges against him in Nottingham Crown Court, he should be compensated for costs by the charity with the sum of approximately £25,000. The sum claimed being the difference between his legal bill for defending the allegation of theft and what he had been able to recover from Legal Aid, because he had been prosecuted as a trustee.

Trustee B’s claim was rejected by the IM on the grounds that he had received as a trustee unauthorised benefits.

Engagement with the UDM on the appointment of new charity trustees

The inquiry formed the view that the best outcome would be for the Union of Democratic Mineworkers (UDM) to appoint charity trustees, in accordance with the governing document provisions and met with UDM in July 2013, to discuss the future trusteeship of the charity and define/agree the role of UDM, as trustee nominating body.

The inquiry remained alert to the wider events leading to the opening of the inquiry i.e. the SFO/SYP investigation into the suspected fraud involving the miners’ compensation scheme and the criminal activities of Trustee A (who had been a UDM official).

The inquiry’s liaison with UDM on these matters was concluded in April 2014 with the appointment of new trustees (‘the new trustees’). On 28 April 2014 the inquiry informed UDM that it intended to discharge the IM, which would effectively transfer to the new trustees full management and control of the charity’s administration, primarily to wind up the charity and transfer any residual funds to a charity (or charities) with similar objects.

New issues emerge relevant to the inquiry

The inquiry received queries and complaints about the administration of another charity linked to UDM (‘charity A’). In June 2014 it emerged that two of the trustees of charity A (trustees X and Y) had received payments from charity A’s funds and were also the new trustees of the charity.

Given that unauthorised trustee payments was a key concern in the inquiry, it wrote to UDM in June 2014, seeking an explanation for the payments and other concerns raised at that time about the administration of charity A .

The inquiry advised UDM it would not discharge the IM as originally intended, until UDM could demonstrate that the new trustees were suitable to take on the management and administration of the charity.

The inquiry found that both trustees X and Y received small payments for medical bills, which were appropriately authorised. They were both ex-miners and therefore within the class of beneficiaries of charity A’s governing document.

Variation of the IM’s appointment

In June 2015, whilst the inquiry continued to seek assurances from UDM that the new trustees would employ sufficient safeguards to protect the charity’s funds, it authorised an order varying the IM’s appointment terms, a temporary measure allowing the new trustees to operate the charity in conjunction with the IM.

The order provided that the IM retain sole signatory rights over the funds of the charity, which could only be applied with his express consent and within two months from the making of the order and that the IM should produce and file with the Commission the charity’s final accounts within one month of the funds being applied. This action would serve to facilitate the charity’s winding up and subsequent removal from the register, discharge the IM and conclude the inquiry by September 2015.

The deadline of the varying order elapsed before considerations by the trustees and the IM on the appropriate final application of the charity’s funds could be concluded.

Due diligence work and transfer of £1.142 million to another charity

The inquiry met with the new trustees in March 2016, to discuss their proposals for the distribution of the charity’s funds and agreed to also meet with the trustees of Nottinghamshire Miners Welfare Trust Fund Scheme (NMWTFS) – registered charity number 1001272, the new trustees’ preferred recipient of the charity’s funds.

Having met with the NMWTFS trustees in June 2016 and reviewed its governance and management controls, the inquiry was satisfied that NMWTFS (with support from its national representative the Coal Industry Social Welfare Organisation, registered charity number 1015581), would be a suitable recipient. In July 2016 the new trustees made a resolution transferring the charity’s funds to NMWTFS. The funds were transferred by the IM in two tranches, £1,140,000 in July 2016 and the remaining balance of £2572.99 in November 2016, some funds were held back until all costs had been accounted for.

The charity’s final accounts were sent to the Commission in December 2016 at which point the IM was discharged. The charity was removed from our register on 18 January 2017, under section 34(1)(b) of the 2011 act, and the substantive part of the Commission’s inquiry was closed.

Findings

This section describes the findings of the inquiry, in accordance with its scope set out in ‘Issues under investigation by the inquiry’.

Whether the charity’s investment in the care home was properly safeguarded, its sale complied with legal requirements and the trustees’ associated decision-making was reasonable and in the charity’s best interests

The Commission engaged with the charity to ensure that the disposal of its care home was fully-compliant with legal requirements.

The charity obtained a surveyor’s report dated 26 September 2007 as required under the legal requirements of section 36 of the 1993 act, the prevailing charities act at that time, when disposing of charity property.

Given the reasons for disposal and the fact that the charity had complied with its obligations under the 1993 act, the Commission was satisfied the disposal was conducted in accordance with legal requirements. As temporary protective powers had been deployed during the inquiry to secure any proceeds of sale, it was also satisfied it had no further regulatory concerns in this area.

The sale of the care home was completed on 26 September 2007, generating net proceeds for the charity of £1,625,763.59.

The IM used part of these net proceeds to pay off the charity’s historic loans of approximately £535,000 owing to organisations connected with the UDM.

Whether the charity had been used for unauthorised private benefit and/or whether charity funds had been misapplied/misappropriated

Trustee A

Trustee A’s guilty verdict was reached on the basis of evidence including information provided to the prosecution by the Commission, which it had obtained and evaluated during its inquiry. This revealed that building works allegedly undertaken at the charity’s properties and for which it had been invoiced, had actually been carried out at private residences connected with Trustee A and Trustee B.

The compensation of over £200,000 Trustee A paid the charity by the order of the court represented the aggregate of his and Trustee B’s unauthorised benefit from the charity and/or its trading subsidiary. This sum was calculated using the value of the invoices for the building work presented to and paid by the charity and/or the trading subsidiary, expressed in terms of the equivalent value in December 2012 (when Trustee A was ordered by Nottingham Crown Court to pay the compensation).

Trustee B

Trustee B admitted to the court that work had been carried out at several of his properties and those of family members. He said that he believed such work was paid for in cash or via a company set up and run by the UDM. UDM had no knowledge of this company and trustee B was in fact the company’s Director.

Trustee B denied that he knew Trustee A was using charity funds for his own purposes, or that he had authorised such expenditure, or that he would have authorised it had he been asked to do so. The inquiry found that Trustee B had benefited from the funds misappropriated by Trustee A.

Trustee C

No allegations were made against Trustee C, he was not one of the defendants in the criminal trial and the Commission had seen no evidence of him misappropriating charity funds. In relation to the funds misappropriated by Trustee A, the Commission concluded from its inquiry findings that Trustee C did not benefit from his position of trust.

Whether the charity’s administration, governance and management by the trustees was effective and in accordance with charity law

The inquiry sought to establish the extent to which, if at all, Trustees B and C facilitated, albeit unwittingly, Trustee A’s theft of charity funds by failing in their duties as charity trustees and, in the case of Trustee B, as director of the charity’s trading subsidiary. The inquiry interviewed Trustee B on 21 November 2012 and explored with him key evidence he had given during the trial.

On the basis of the trial evidence given by Trustee B, his subsequent interview by the inquiry, information disclosed by the SFO and in relation to the known facts, the inquiry found that:

In relation to the charity:

• all three trustees shared collective responsibility for the management and control of the charity, including maintaining oversight of payments made by the charity and were unable to delegate those responsibilities
• trustees A and B exercised specific authority regarding payments, being signatories to the charity’s accounts and were unable to delegate those responsibilities
• in the absence of supporting documentation and without following documented policies and procedures, payments were not properly authorised, consequently allowing Trustee A to misappropriate the charity’s funds

In relation to the trading subsidiary:

• trustees A and B, being directors and account signatories of the trading subsidiary, shared collective responsibility for its management and control, including maintaining oversight of any payments made and were unable to delegate these responsibilities
• in the absence of supporting documentation and without following documented policies and procedures, payments were not properly authorised, consequently allowing Trustee A to misappropriate the trading subsidiary’s funds

Conclusions

The three trustees shared collective responsibility for the management and control of the charity and were unable to delegate this responsibility, which included a general duty to account for, collect in, care for and apply charitable funds, in accordance with the charity’s trusts. This is a primary duty of a charity trustee.

The three trustees also shared a collective responsibility to keep under review the performance of the trading subsidiary in delivering the charity’s purposes by way of administering the care home. This included ensuring that the trading subsidiary remained fit for purpose and being satisfied that expenditure on and by the care home was appropriate, reasonable and for the benefit of the care home.

The inquiry concluded that:

• the use of charitable monies for the purposes of private building works and unauthorised personal benefit constituted serious misconduct and/or mismanagement by Trustee A and Trustee B in the administration of the charity. It was clearly a breach of Trustee A’s fundamental duty as a charity trustee not to benefit from his trust (unless expressly authorised by the governing document of the charity, the court or the Commission) and a breach of their duty to account for, collect in, care for and apply charitable funds, in accordance with the charity’s trusts
• trustee C had no authority to act as a director of the trading subsidiary or to authorise payments from the trading subsidiary’s accounts. However he, together with his fellow charity trustees, shared a collective responsibility to keep under review the performance of the trading subsidiary in delivering the charity’s purposes by way of administering the care home
• ultimately, all three trustees failed to adequately discharge their legal duties as charity trustees, in particular in their duty to account for the charitable funds they were charged with administering

Trustee A was disqualified from acting as a charity trustee as a result of his conviction on 14 counts of theft. Limitations in the Commission’s powers at that time meant it was not able to take regulatory action to remove and/or disqualify Trustees B and C because their trusteeships had lapsed. This weakness has been addressed through the introduction of the Charities (Protection and Social Investment) Act 2016.

Regulatory action taken

Throughout the course of the inquiry, the Commission used a wide range of regulatory powers, including under sections:

• 8(3)(b) and 9(1)(a) and (b) of the 1993 act and 52(1)(a) and (b) of the 2011 act, ordering the provision of documents/information to the Commission
• 18(1)(i) of the 1993 act, suspending Trustees A and B from being charity trustees, officers and/or agents of the charity
• 18(1)(iv) of the 1993 act, ordering (without the Commission’s prior written approval):
  • the bank not to part with the charity’s and trading subsidiary’s property
  • the charity’s solicitor not to transfer the proceeds of sale of the care home
  • the trading subsidiary not to enter into any personal transaction with Trustees A and B
• 18(1)(vii) of the 1993 act, ordering the appointment of an IM to the exclusion of the charity trustees, to carry out specific functions
• 76(3)(g) of the 2011 act, discharging the IM
• 34(1)(b) of the 2011 act, removing the charity from our register

Appointment of an IM

On 6 June 2008, the inquiry made a Commission order under section 18(1)(vii) of the 1993 act (now section 76(3)(g) of the 2011 act), appointing an IM. The specific functions of the IM were to:

• take over the administration of the charity and its property and discharge the functions of the charity trustees of the charity to the exclusion of the current charity trustees
• investigate loans made to the charity and/or its trading subsidiary, determining whether:
  • the loans were properly entered into by the charity trustees of the charity/directors of the trading subsidiary
  • any conflicts of interest were identified and managed
  • the charity trustees of the charity/directors of the trading subsidiary have personally benefited, are personally benefiting, or will personally benefit from the loans or their repayment, directly or indirectly
  • the loans were entered into in the best interests of the charity
  • the loans are legally repayable to the respective lendors and if so, to make such repayment
• establish the appropriate division of funds between the trading subsidiary and the charity that are held in the name of the trading subsidiary and to recover funds due to the charity from the trading subsidiary
• review the financial records of both the charity and the trading subsidiary to identify any evidence of misapplication or misappropriation of funds (over and above the evidence already brought to the attention of the Commission) and to calculate the total sum(s) to be taken into account when consideration is given to the matter of restitution
• assess whether the charity continues to be financially and operationally viable, including considering if:
  • the charity is capable of furthering its purposes under its governing document (the scheme)
  • it is possible to recruit independent trustees
• generally discharge such other functions as the Commission may request In response to ongoing developments in the inquiry, the Commission varied its original order by a further order on 18 June 2015, which enabled the IM to carry out additional specific functions, namely to:
• act alongside the persons nominated by the UDMNS as nominated trustees in all outstanding matters concerning the management and control of the administration of the charity
• participate in any decision to co-opt up to two individuals as trustees, under the relevant clause of the charity’s scheme
• apply the charity’s funds at the direction of the charity trustees, in furtherance of its objects and/or dissolution provisions of the charity
• (having applied the funds of the charity) produce and file with the Commission final accounts for the charity, including details of all expenditure, resulting in a nil balance

The IM remained in post until 21 December 2016 and was paid a total of £150,451.81 from the charity’s funds, itemised as follows:

• fees directly related to the IM’s work - £125,376.50
• professional fees related to work conducted by third parties on behalf of the IM - £1,903.50
• disbursements (expenses, e.g. travel, accommodation, etc.) - £152.80
• VAT - £22,772.71

Issues for the wider sector

Charity trustees are responsible for governing the 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 roles 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. Trustees’ must be able to show that they have followed these principles and keep adequate records to evidence that their decisions have been properly made, particularly for important or controversial decisions.

The Commission’s guidance on trustee decision making is available on GOV.UK.

The trustees of a charity are collectively responsible for its proper management and need to make decisions about the charity together. They should act together, in accordance with the requirements of their governing document and the general law, and they must always bear in mind their overriding duty to take decisions that are in the best interest of the charity.

Trustees need to critically and objectively review proposals and challenge assumptions in making decisions in the charity’s best interest. Trustees who simply defer to the opinions and decisions of others aren’t fulfilling their duties. Things can go wrong when trustees place too much reliance on individuals, and don’t implement sufficient safeguards to ensure accountability.

Trustees are under a legal duty to ensure that their charity’s funds are applied solely and reasonably in furtherance of its objects. They must also be able to demonstrate that this is the case. Part 8 of the 2011 act requires trustees to keep accounting records for their charity irrespective of their income level.

Every charity’s accounting records must be sufficient to show and explain its transactions and disclose with reasonable accuracy its financial position. Therefore, in order to show that they are complying with their legal duties, trustees must keep records and an adequate audit trail to show that the charity’s money has been properly spent on furthering the charity’s purposes for the public benefit.