The Insolvency Service has announced that it has banned the former chief executive of the now defunct substance abuse charity Lifeline Project as a company director for seven years.
This follows an investigation which found he committed the charity to three payment-by-results contracts from August 2015 to January 2016 with "unachievable" targets, which resulted in approximately £1.4m in losses and ultimately led to the closure of the organisation. Having held the chief executive role at the charity for 24 years he is now also banned from being directly or indirectly involved in the promotion, formation, or management of any company for seven years.
The Lifeline Project went into administration in March 2017, at which point it owed approximately £4m to unsecured creditors and £280,000 in pension contributions and was put into voluntary liquidation in June 2018. The Insolvency Service’s investigation found that at that time, the charity had £2.7m in cash at the bank, other assets worth approximately £300,000, and freehold property worth £410,000. In total, this resulted in a financial deficit of approximately £1.4m.
The regulator concluded that it was the CEO’s decision to enter into contracts without doing the necessary due diligence which resulted in the charity being unable to pay off its debts and the forcing of the charity to go into administration.
The investigation by the Insolvency Service stemmed both from a report the Lifeline Project’s administrators sent to the Insolvency Service and from allegations of mismanagement made to the Charity Commission by a former trustee. That trustee asked to resign after raising concerns regarding upper-level management of the organisation and the sudden decline of the charity's working reserve.
The charity's income had grown rapidly in recent years, with an annual income of £26 million in 2012-13 and an annual income of approximately £62 million in 2015-16. However, administrators claim the organisation's growth was funded from cash flows and reserves, which was exhausted in the last twelve months prior to entering into administration in funding losses in contracts.
Most of Lifeline Project's creditors are owed relatively small sums, with the largest unsecured creditor by far being Tees Esk and Wear Valleys NHS Foundation Trust which is owed £217,000. However the charity also employed approximately 1,300 people at the time the charity went into administration. Fortunately for the employees and the people whom Lifeline Project provides services for, the charity Change Grow Live took on approximately 1,000 employees of Lifeline Project and 40 projects they were working on. The remaining staff and projects of Lifeline Project was transferred to various other charitable organisations.
Chief investigator for the Insolvency Service, Robert Clarke, made a statement saying that he hoped the severity of Wardle's punishment will serve as a warning to other directors who handle charitable funds that the Insolvency Service is prepared to take action to prevent further damage to the charity sector.