Decision

The Suyuti Institute

Published 19 March 2019

This decision was withdrawn on 18 January 2022

This Inquiry report has been archived as it is over 2 years old.

Applies to England and Wales

A statement of the results of an inquiry into The Suyuti Institute (registered charity number 1151600).

Published on 19 March 2019.

The Charity

The Suyuti Institute (‘the Charity’) was registered on 11 April 2013. It is governed by trust deed dated 28 March 2013.

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

Issues under Investigation

On 16 January 2017 the Commission opened a statutory inquiry (‘the Inquiry’) into the Charity under section 46 of the Charities Act 2011 (‘the Act’). The Inquiry closed on 19 March 2019 with the publication of this report.

Initially, the concern raised with the Commission was that there was a lecture posted on YouTube in the Charity’s name, and delivered by a trustee, which gave cause for concern as to whether the trustees were discharging their duties as charity trustees and carrying out activities in furtherance of the Charity’s objects for the public benefit.

The Commission opened a Compliance Visits and Inspections case on 13 July 2016 to assess the concerns further and it met with the Charity’s founding trustees Zainul Aqtab Siddiqi and Afifa Kiran (‘Mr Siddiqi’ and ‘Ms Kiran’ respectively; together ‘the founding trustees’) on 1 November 2016 to discuss the specific concern further and also to consider the Charity’s governance, management and administration more widely.

After the Commission’s meeting with the trustees on 1 November 2016, the focus of the Commission’s concerns switched from the delivery of lectures to concerns that the Charity had been abused for potentially significant private benefit after it became apparent that the trustees had entered into an agreement to accept the assets and significant liabilities of a private trust, The Hajveri Foundation (‘the private trust’) connected to trustee Mr Siddiqi’s late mother.

It appeared to the Commission that this decision was made without adequate consideration of the underlying risks arising from the transfer of the private trust’s liabilities, that conflicts of interest had not been properly considered and that the decision was not in the Charity’s best interest, in accordance with the trustees’ legal duties or the Charity’s governing document.

It also appeared that the decision had exposed the Charity to significant financial risk. As a result, on 16 January 2017, the Commission opened a statutory inquiry to investigate these matters further.

The Inquiry focused on:

• whether the trustees had properly exercised their legal duties and responsibilities under charity law in the administration of the Charity
• the financial management of the Charity
• whether there had been any private benefit to the trustees of the Charity
• whether there had been misconduct and/ or mismanagement by the trustees

Findings

Whether the trustees had properly exercised their legal duties and responsibilities under charity law in the administration of the Charity

The Charity’s founding trustees explained that, in their view, the Charity had correctly and legitimately taken over the private trust, including all of its assets and liabilities.

However, the Inquiry established that:

• the private trust’s primary asset was a property in Manchester comprising an old cinema building known as The Osborne Cinema
• the Charity’s founding trustees provided a Deed of Transfer document, dated 15 June 2013, showing that the Charity acquired the assets comprising:
  • funds held in a Lloyds TSB account number – the inquiry obtained bank statements that showed that the balance on the account was £0.00 at the date of transfer
  • the property known as Osborne Cinema, Oldham Road, Miles Platting, Manchester
• the Deed of Transfer also confirmed that the Charity had acquired corresponding liabilities of:
  • all monies borrowed by way of interest free loans totalling £36,000 and
  • a mortgage liability arising under a Memorandum of Understanding between then trustee Mr Siddiqi’s wife and the transferor
• the founding trustees provided the said Memorandum of Understanding, dated 3 July 2005, between the private trust and Mr Siddiqi’s wife where it was agreed that she would lend the private trust £330,000 by way of securing a first legal charge against her own property and the private trust would then become liable for making the mortgage repayments. This, in addition to the aforementioned interest free loans, enabled the private trust to purchase the old cinema building
• the Charity’s interest in the land was not registered at the Land Registry. Instead it was still registered in the name of the previous owner who had sold the land to the private trust
• the cinema was demolished by the local authority- Manchester City Council- at some point between November 2009 and June 2010 because it had fallen into a dangerous state of disrepair
• the founding trustees, at the meeting with the Commission on 1 November 2016, did not mention that the old cinema building had been demolished

The Inquiry was concerned because it appeared that the Charity had acquired an asset- the land on which the old cinema building was built (now essentially wasteland) - at the same time that it had acquired a significant liability- the obligation to pay the loan that secured the funds to purchase the old cinema building- which the Inquiry established stood at £334,745.75 (as of 29 November 2016). The land was also subject to charges of approximately £125,000 (plus interest at 5.6% per annum) relating to the costs that the council incurred demolishing the property. The Inquiry was concerned as to whether taking on these significant liabilities was in the best interests of the Charity.

The Charity’s founding trustees explained that the original decision to acquire the assets of the private trust was taken on 11 November 2012 by three of the then four trustees. However, the Charity was established by a trust deed signed on 28 March 2013 by the founding trustees. Therefore the decision to accept the transfer of the private trust was made prior to the creation of the Charity not just prior to its registration with the Commission. The Inquiry considered that the entity that made the decision in 2012 to accept the assets and liabilities of the private trust was a completely different trust.

The founding trustees explained that the decision to accept the transfer was ratified after registration of the Charity with the Commission by one trustee (Ms Kiran) and an internal advisory group known as the Majlis, with trustee Mr Siddiqi being excluded from the decision making on account of him being conflicted. This decision was dated 11 April 2013. Given that the 2012 decision was taken before the Charity was created, it was the decision of 11 April 2013 that was the actual decision of the Charity to accept the assets and liabilities of the private trust.

At the time of the purported transfer (i.e. 11 April 2013), the Charity had two trustees and clause 17 of its governing document stipulated that two trustees were required to form a quorum. Clause 19 of the Charity’s governing document provided that a trustee must declare any conflicts of interest and absent themselves from the discussion and decision making about the issue concerned. One of the trustees Mr Siddiqi had a conflict of interest in connection with the decision to accept the transfer of assets and liabilities from the private trust because the liabilities included a mortgage on a property owned by his wife and which was his home. If he had absented himself from the decision making that would have left only one remaining trustee and consequently it would not have been possible to make a quorate decision. The Inquiry did not accept that the Majlis could legitimately be involved in the decision making of the Charity as argued by the founding trustees.

The Charity’s founding trustees are both solicitors and, at the time, were partners in the law firm Saints Solicitors LLP in Birmingham. They explained at the Commission’s meeting with them on 1 November 2016 that they have specialisms in charity law and conveyancing. The Inquiry considered, given their professional background, that it was reasonable to expect that the founding trustees would have understood what a conflict of interest was and to know that they had a duty to act in the best interests of the Charity when considering whether to accept the assets and liabilities of the private trust. The failure to properly manage this significant conflict of interest was a breach of trustee duty and therefore misconduct and mismanagement in the administration of the Charity.

Having assessed the founding trustees’ initial explanations for the purported decision, the Inquiry set out its view to them- in a letter dated 3 April 2017- that the decision to accept the assets and liabilities of the private trust had not been validly taken and was therefore void. The Inquiry confirmed its view that the transfer had not taken place and that all parties should be put back in the positions they were in prior to the purported transfer of the private trust, which was accepted by the Charity’s trustees, and the transfer was reversed.

In effect, this has reverted the liability for the loans back to the private trust and confirmed it as the legal proprietor of the land comprising the old cinema building. The founding trustees were advised, and accepted, that payments made by the Charity towards the servicing of the loans used to purchase the property should be returned to the Charity by them.

The financial management of the Charity

The Inquiry established that the Charity’s bank account had been subject to a series of convoluted financial transactions where the Charity had entered into loans from third parties, without any formal records or agreements being kept. Further, that the repayments of such loans had, on occasion, been paid to other third parties rather than the person purported to have made the loan.

The Commission would expect that where a person or organisation makes a loan to the Charity for a specific purpose that loan should be recorded via a written document setting out the terms of the loan and the arrangements for repayment. At the point of repayment the Commission would expect that the loan be repaid to the same person or organisation that lent the funds; repaying the funds to multiple unconnected individuals without an adequate reason or audit trail is indicative of financial mismanagement and called into question the trustees’ financial stewardship of the Charity.

On other occasions, payments had been made to the trustees themselves to repay funds they were said to have lent the Charity. The Inquiry established that a payment was made from the Charity’s account directly to then trustee Mr Siddiqi via a cheque dated 2 October 2015 for £57,250. This cheque was signed and authorised by Mr Siddiqi alone as the sole signatory to the account. It was explained to the Inquiry that this payment represented the repayment of sums introduced by Mr Siddiqi to the Charity as loans and also included sums owed to him for other reasons. The trustees broke down the total as follows:

• £35,000 represented funds introduced by Mr Siddiqi to the Charity from his personal bank account
• £13,250 represented personal debts owed to him by personal debtors
• £4,000 represented ‘compensation monies’ due to him
• £4,000 represented funds introduced by Mr Siddiqi from his personal savings

The founding trustees explained that rather than Mr Siddiqi’s personal debtors repay him monies they owed him directly, the debtors were instructed to pay the Charity to settle the outstanding amount(s). These funds were then later repaid to Mr Siddiqi as part of the cheque for £57,250 explained above.

The Inquiry found that evidence provided in respect of money owed by third parties personally to Mr Siddiqi was convoluted and confusing and did not provide an adequate audit trail to demonstrate that the repayments were legitimate. There were no loan agreements in place or contemporaneous notes to demonstrate that there had been any proper consideration of the trustees’ important legal duties.

In addition, even if the payments could be demonstrated to be legitimate, the Charity’s governing document stated, at clause 26 ‘…unless the regulations of the trustees make other provision, all cheques and orders for the payment of money from such an account shall be signed by at least two trustees’. The trustees also provided the Commission with a financial controls policy which states ‘[a] trustee will not write or sign a cheque which is payable to… him/ herself’.

Given that Mr Siddiqi had signed the cheque to himself as sole signatory, this led the Inquiry to have serious concerns about the financial controls within the Charity and the extent of control that one trustee could have over the Charity’s finances. The lack of a second signatory to authorise payments out of the account represented a significant weakness in the Charity’s internal controls and contradicted the policy in place, undermining its purpose. It was also a breach of the Charity’s governing document. Taken together, the Inquiry found that the founding trustees’ financial management of the Charity amounted to misconduct and mismanagement in its administration.

Whether there had been any private benefit to the trustees of the Charity

The Inquiry found that £28,962.65 of the Charity’s funds had been spent in paying the loan that secured the funds to purchase the old cinema building- as set out above, the decision to accept this liability was not validly taken and there was therefore no legal basis for the founding trustees to have made such payments from the Charity’s funds.

Mr Siddiqi and his wife benefitted directly by this amount as these payments paid off the mortgage on their family home.

Conclusions

The Commission concluded that the founding trustees had breached their trustee duties on a number of occasions and there was mismanagement and misconduct in the administration of the Charity because the Charity’s founding trustees:

• made an inquorate decision to accept the assets and significant liabilities of the private trust and exposed the Charity to significant financial commitments as a result
• failed to identify and then manage their conflicts of interest
• could not adequately account for the Charity’s financial transactions
• applied charitable funds without a proper legal basis
• in the case of Mr Siddiqi, received significant private benefits from the Charity

Regulatory action taken

The Inquiry used the Commission’s powers under section 52 of the Act to obtain copies of the Charity’s bank statements from its bank and the Inquiry directed the trustees to provide information and documents to the Commission under section 47 of the Act. It also issued section 47 directions on Manchester City Council and the liquidators of the previous company that owned the old cinema building to establish the facts in relation to this property.

On 17 January 2017, the Inquiry froze the Charity’s bank account under section 76(3)(d) as a temporary and protective measure to prevent further misapplication of the Charity’s funds whilst it investigated the matters of concern.

Having established the facts, as set out above in this report, on 17 July 2017 the Inquiry suspended the Charity’s founding trustees under section 76(3)(a) of the Act and issued notice of its intention to remove them as trustees, for the misconduct and mismanagement identified in this report and attributed to them.

On 23 August 2017, under section 79(4), the Inquiry removed the founding trustees permanently from their positions as trustees of the Charity for the misconduct and mismanagement identified. This also disqualifies the founding trustees from holding, in the future, the position of a trustee in any charity and from holding senior management functions in any charity.

Five new trustees were appointed as trustees of the Charity on 27 February 2017. Once the Inquiry had exercised the Commission’s powers to remove the founding trustees in August 2017, it met with the new trustees on 19 October 2017 to assess their ability to place the Charity on a sound footing for the future and to take action against the founding trustees to recover the Charity’s misapplied funds.

In summary, the new trustees (of whom two subsequently resigned with a further five new appointments) have taken the following steps to regularise the difficulties present:

• agreed with the Inquiry that the Charity’s previous decision to accept the assets and liabilities of the private trust was invalid and should be set aside
• met with the founding trustees to pursue them for the misapplied funds
• taken legal advice from charity law specialists on whether the sums introduced by Mr Siddiqi should be regarded as loans or gifts and on their legal obligations as charity trustees to pursue repayment in light of the facts and the likely view of the courts
• conducted their own enquiries into the origins of funds introduced by founding trustee Mr Siddiqi and repaid to himself via cheque in October 2015 and concluded, despite the poor audit trails, that he did, on balance, initially introduce some funds into the Charity to justify later repayment
• arranged and secured repayment from Mr Siddiqi for funds owed to the Charity by him
• updated the Charity’s bank mandate with its bank provider to remove the founding trustees from the mandate
• implemented new and improved financial controls to reduce the future likelihood of misapplication of the Charity’s funds by its trustees
• committed to producing a strategy for the Charity’s future activities after a period of inactivity whilst the Inquiry was ongoing

The Inquiry took the view that the new trustees had taken their responsibilities seriously including obtaining specialist legal advice. They had taken decisions concerning the recovery of funds which were within the range of reasonable decisions. This together with the Inquiry’s use of the Commission’s powers of protection to remove the founding trustees meant that the Charity was on a firmer footing for the future and that the ‘freezing Order’ should be discharged and the Inquiry concluded.

Issues for the wider sector

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 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

Trustees must actively manage any conflicts of interest. They should step back from or avoid any situation where a conflict exists or is likely to arise if it is clear the conflict cannot be adequately managed, even if this means, for example, that additional disinterested trustees are appointed or that the affected trustees resign. 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.

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.

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.

If a loan has been made to the charity, the Commission would expect the charity to have some form of agreement in place to cover this arrangement. This should, as a minimum, set out the terms of the loan, when it was to be repaid and any interest to be added. This helps to protect charitable funds from potential abuse. As such, any failure by the trustees to take this action potentially puts charitable funds at risk and so would be a breach of a trustee’s duty to safeguard the charity’s assets.

Where a trustee is seeking reimbursement of sums loaned to a charity of which he is trustee, there is a pressing necessity, given the self-dealing element, to ensure transparency. The best and perhaps the only way that this can be achieved is making and keeping up to date proper records as well as involving fellow trustees in the process and recording the process in a formal manner.