Case review: Ioannou v Charity Commission for England and Wales

On 22 February 2023, the First-Tier Tribunal (General Regulatory Chamber) (the 'Tribunal') rejected a trustee's application for appeal, following his disqualification as a trustee by the Charity Commission for mishandling the termination of a management company linked to the Charity; misappropriating charitable funds; and failing to properly manage a conflict of interest.

The case concerned Mr Ioannou (the 'Trustee'), a trustee of Enfield Island Village Trust (the 'Charity'), a charity established for the purpose of maintaining the facilities, and promoting the wellbeing of the inhabitants, of the Enfield Island Village housing estate (the 'Estate').

Background

The Trustee held his role at the Charity from 2013 and was a resident of the Estate (and therefore a member of the Charity).

Between 2014 and 2015, the Charity terminated the contract of the incumbent management company, Amber Estate Management Ltd, and appointed two companies to undertake managerial roles: ICRI Ltd and EIVT Management Ltd. The Trustee was a director of both newly appointed companies.

During the appointment process, the Charity trustees disputed how the Charity could best manage the Estate, and two groups of trustees both claimed to be validly appointed. Following their termination, Amber Estate Management Ltd, issued proceedings.

In February 2015, the Charity Commission issued an action plan to the Charity, before opening a statutory inquiry later in 2015, during which the Commission appointed two Interim Managers.

After the appointment of the interim managers, the Trustee tendered his resignation as trustee of the Charity. The Interim Managers requested that the Trustee, in his role as director of ICRI Ltd, transfer £200,000 of accumulated rental income with other funds held by ICRI to the Charity.  The Trustee transferred £30,000 only, contested the legality of the Interim Managers' instructions, and issued an invoice on behalf of EIVT Management Ltd for £306,259 in respect of fees for management services rendered to the Charity.

In November 2015, the Commission obtained freezing orders on ICRI Ltd bank accounts, and the Interim Managers terminated the contract between the Charity and EIVT Management. The Trustee then resigned from his role as a director of EIVT Management on 16 November 2015.

In 2017, the Interim Managers were discharged, and the Commission directed ICRI Ltd to transfer any remaining funds in ICRI accounts to the Charity. ICRI Ltd failed to comply until 2020.

In 2021, the Commission ordered the Trustee's disqualification. The Trustee denied any misconduct or mismanagement and appealed the disqualification.

The Tribunal's decision

The Tribunal rejected the Trustee's appeal and upheld the Charity Commission's case for disqualification, on the basis that:  

1. The Trustee had mishandled the termination of Amber Estate Management's contract and had terminated in a reckless manner with no regard to the likelihood of the management company seeking to enforce the contractual penalty clause. The Trustee had failed to seek specific legal advice; and the trustees had failed to properly discuss and minute the decision. The Tribunal emphasised that by agreeing to the penalty clause in the contract, which allowed the company to receive full payment of the entire contract period were it to be terminated in some circumstances, the Trustee had failed to act in the best interest of Charity.
2. The Trustee misappropriated charitable funds raised through the rentals from two flats owned by the Charity and failed to return the Charity's funds before his resignation as a trustee. The Tribunal rejected both of the Trustee's arguments that he held the funds either (i) on the basis that ICRI Ltd was entitled under its contract to full payment of the remainder of the contractual term; or (ii) that the money held represented service charges and had to be held on trust and could not be lawfully transferred.
3. The Trustee further failed to properly declare and manage his conflicts of interest in allowing his company to be appointed as a managing agent while he remained a trustee. The Tribunal held that it should have been manifestly clear to the Trustee that being simultaneously trustee of the Charity and the director of its managing agent would lead to a conflict of interest that could not simply be managed by stepping out of board meetings, due to the duration and involvement required of both roles. Again, the Tribunal referred to the penalty clause which would have allowed the company of which the Trustee was director to benefit to the disadvantage of the Charity.

Mr Ioannou was disqualified from being a charity trustee, as well as disqualified from holding an office or employment with senior management functions in the charity or charities, for a period of 5 years.

Implications for Charity Trustees

• When considering entering into or terminating contracts impacting the charity, charity trustees must seek specific legal advice and properly discuss and minute the decision that the trustees make, and their justifications for doing so.
• Charity funds must be used for the furtherance of the charity's purposes only: this case serves as a reminder of such. Mishandling and misappropriation of charitable monies by trustees, or retired trustees, will not be viewed lightly by the Commission or the Courts.
• Charity trustees must exercise great care in undertaking conflicts of interest and must always put the best interests of the charity first. If trustees choose to engage services of organisations in which they are interested, robust and practical policies must be in place to avoid conflicts. Trustees must consider whether, even where possible, such relationships are prudent.