High Court ruling on Kids Company

The High Court of Justice recently examined the case of Michael-Karim Kerman, R (on the application of) v Charity Commission for England and Wales regarding the now-defunct charity Kids Company. Delivered on 20 May 2025, this ruling concerned the judicial review of a report from the Charity Commission that scrutinised Kids Company's administration and operations. Following the charity's dramatic collapse in 2015, the inquiry raised serious concerns about governance, financial management, and alleged misconduct, prompting Kerman, a former employee, to challenge the Commission's findings.

In his ruling, Mr Justice Sheldon highlighted the importance of maintaining public trust in charitable organisations, stating that the inquiry aimed to ensure compliance with statutory regulations. He noted that the report accused Kids Company of poor record-keeping practices and insufficient oversight by its trustees, emphasising the need for accurate financial practices in light of the charity's financial troubles.

Kerman's claims centred on the perceived irrationality of the report's findings and the suggestion that the Commission had a predetermined stance against Kids Company. Mr Justice Sheldon explored these claims, acknowledging flaws within the report yet ultimately determining that the overall conclusions were not irrational when contextualised appropriately. He explained that while certain aspects of the report were criticized, this did not invalidate the majority of the findings regarding the charity's governance and financial practices.

A notable point of contention involved the Commission's remarks regarding the charity's financial reserves, which suggested a failure to manage operational pressures effectively. Sheldon recognised that this could potentially damage the reputations of the trustees. He also emphasised that the report lacked sufficient acknowledgment of previous judicial findings, particularly those indicating that management acted reasonably given the circumstances.

The analysis further examined the specification of 'top clients' and the financial governance surrounding operational decisions. Kerman's team argued that the Commission's interpretation of expenditures unfairly portrayed the charity, neglecting the complexities faced by its trustees. Mr Justice Sheldon concurred, asserting that while rigorous reporting standards are crucial, they must also reflect the operational challenges encountered by charities.

In conclusion, the court upheld most of the Commission's findings while ruling that two specific paragraphs in the report regarding trustee actions and scrutiny of payments were irrational and required further clarification. The case underscores the significance of transparency and accountability in the charitable sector, highlighting the vital balance between operational risks and the essential need for strict oversight. The ruling not only serves as a reminder of the lessons learned from Kids Company's downfall but also signifies potential future precedents for charity regulation as the legal landscape continues to evolve

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