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High risk investment decision loses charity £3.9 million

A Charity Commission inquiry into Kingsway International Christian Centre found that charity trustees had breached their duties by investing £5 million in a speculative and high risk investment.
Kingsway International Christian Centre (KICC) is based in London, England and was established in 1992 with 200 adults and 100 children.
Irregularities in the operation of the charity behind Kingsway International Christian Centre (The King’s Ministries Trust) has led to it being investigated by the Charity Commission on two occasions.
The second investigation into misapplication of funds was reported to have started in February 2011. The charity had received £10m from the London Development Agency for the compulsory purchase of its property in Hackney wanted for the 2012 Olympics. Subsequently the Commission enquired into £5m given for investment to a former trustee. Although the trust reported returns from the investment of £1,336,720 in its accounts, the Commission’s appointed accountant says that there is doubt about whether the charity would get the original £5m back.
In particular, the Commission found that:
The ex-charity trustee had entered into an investment agreement with the charity that “guaranteed” a profit of 2.5% to 5% per month (55% per year). However, the investment actually resulted in a net loss of £3.9 million. This loss included a sum paid to HMRC as lost tax exemption, as part of the investment was classified as non-charitable expenditure
The charity trustees had not followed the principles they were expected to follow when making investments. They:
• had failed to ensure that they were sufficiently informed and had not taken into account all relevant factors;
• could not show that their decision was based on sufficient and appropriate evidence;
• had not taken independent professional advice; and
• appeared to have no understanding or appreciation of the high risk nature of the investment.
The ex-charity trustee was a charity trustee when the investment was made. The charity trustees had not properly managed conflicts of interest when the decision to invest was made, and had placed too much reliance on the expertise of the ex-charity trustee.
The Trust has been told it must obtain written permission from the Charity Commission before making any more investments.
In this case, Kingsway International Christian Centre was a company limited by guarantee. The case provides a stark illustration of how charity trustees who act in serious breach of their duties may be liable to make good any loss caused to the charity as a result, irrespective of the whether the charity they are responsible for managing and administering is a corporate body with limited liability.
The future outlook for charities remains challenging; trustees must remain alert to the risks of financial distress and manage them effectively. For help and advice on all Charity matters please contact our Charity Team.