Kids Company report has ‘chilling impact’ on charity sector, High Court told

A Charity Commission report into the collapsed charity Kids Company has a “chilling impact” on the sector, the High Court has been told.

In February 2022, the regulator published a report into the management of Kids Company after the charity went into liquidation in August 2015 following unfounded safeguarding allegations.

The commission’s report said the charity had operated a “high-risk business model” and that there was mismanagement in relation to late payments.

On Wednesday, the High Court in London heard the first day of a legal challenge from the charity’s former clinical director Michael-Karim Kerman to have the report declared unlawful.

Mr Kerman is carrying on the challenge initiated by former chief executive Camila Batmanghelidjh before her death in early 2024, while the Charity Commission is defending the claim and has said it should be dismissed.

Alex Goodman KC, for Mr Kerman, said the report “contains one or more logical errors, critical evidential gaps and imbalanced evaluation of the evidence that rob the conclusions of logic”.

He continued in written submissions: “In establishing the legally flawed nature of the decision by the Charity Commission, a final step will be taken in the vindication of the reputation of Kids Company and those associated with it.

“The importance to Mr Kerman and anyone associated with Kids Company, whether as staff, volunteer, or service-user, is to redress the chronic stigma still propagated around the charity and which the report managed to perpetuate.

“If left unchallenged, this report will continue to have a chilling impact on the charity sector, deterring volunteers and donors, and people like Mr Kerman shall remain stigmatised.”

Mr Goodman later said there was a “real possibility” the Charity Commission was “predetermined” to criticise Kids Company.

The barrister added: “In the course of its inquiry it had investigated wide-ranging and serious allegations.

“Almost all of those were dropped in the report.

“They were, however, replaced by a series of criticisms of a significantly lesser order, but sufficient to maintain the stigmatisation of the charity and those associated with it.”

Keeping Kids Company, also known as Kids Company, supported vulnerable children and young people in London and Bristol and previously attracted celebrity backers including former prime minister David Cameron, Coldplay and artist Damien Hirst.

Supporters of Kids Company appeared outside the Royal Courts of Justice in central London ahead of the hearing, with some giving out flowers while others held colourful placards or pictures of Ms Batmanghelidjh.

Alan Yentob, former chairman of the board of trustees, said ahead of the hearing: “We are pursuing this case not only to set the record straight for Kids Company but also to ensure that regulatory bodies operate with transparency, fairness, and respect for judicial findings, as the public rightfully expects.”

Jamas Hodivala KC, for the Charity Commission, said the report set out observations on the operation of the charity as well as lessons learned for the wider sector.

He said in written submissions: “The Charity Commission was entitled to report on whether there were lessons learned for the charitable sector more broadly from the charity’s collapse and the circumstances that led to it, including the administration, governance and financial management of the charity.”

He added: “The report clearly set out that there was no dishonestly, bad faith or inappropriate personal gain in the operation of the charity.”

The barrister said it was “beyond argument” that there was evidence of late payments by Kids Company to HMRC, staff and contractors.

He continued: “The finding that the late payments constituted mismanagement in the administration of the charity was well within the range of conclusions open to the Charity Commission.”

Mr Hodivala later said Mr Kerman “seeks to inappropriately immunise the collapsed charity and its trustees against publication by the Charity Commission of any observations and wider lessons following its demise” with the legal challenge.

The barrister concluded: “As the regulator for the charitable sector, the Charity Commission has a wide statutory discretion regarding the production and contents of its reports and is required to consider how best to allocate its limited resources when conducting an inquiry and producing a report.”

The hearing before Mr Justice Sheldon is due to conclude on Thursday with a decision expected in writing at a later date.