A decision has been published following an inquiry into the Island Health Trust, which focused on the significant sums paid to a consultancy firm owned by its former chair. It was found that the trustees failed to exercise care and skill in managing the Trust's resources, to act in the best interests of the Trust and had acted outside the powers of its governing document. The former chair was disqualified from serving as a trustee for 7 years.
The Trust's main asset is the Island Health Centre on the Isle of Dogs, London, which it rents to a local NHS GP practice. In 2014 the Trust was approached by a property developer proposing to purchase a long lease, which would potentially generate around £10 million in rental income over the next 3 – 8 years. This would provide funds which the Trust could use to support its beneficiaries in the community.
The trustees were keen to secure this redevelopment opportunity, and appointed their former Chair to project manage the Trust's strategic review and manage the site re-development. In March 2015, the Trust entered into a consultancy agreement with Goodband's consultancy firm SGIS, paying the firm £349,955 between March 2015 and March 2017. This sum represented 60% of the Trust's income during that time. The Trust also entered into service contracts with two former trustees, who each received payments of over £15,000 and £8,000 respectively. The redevelopment opportunity then fell through.
In 2019, the Commission opened a statutory inquiry and appointed an interim manager. The interim manager recommended legal action to recover some of the consultancy fees. In November 2021, Goodband settled the litigation by repaying the Trust £165,000.
The scope of the inquiry was to review:
- The administration, governance and management of the Trust, particularly the extent to which the trustees appropriately managed the Trust's finances, spent funds on activities wholly within the Trust's purposes and ensured that decisions to enter into contracts, to pay trustees or connected parties were supervised and properly taken.
- Whether the issues in the administration of the Trust were a result of misconduct or mismanagement by the trustees.
The inquiry found that these issues led to the direct loss of charitable funds, and that the options for recovery of those funds had not been sufficiently explored.
The Commission stated that 'While charities can enter into contracts with parties connected to the trustees, this should be cost effective to ensure funds ultimately help those in need, and the conflict of interest must be properly managed.' It was found that the Trust's spending on consultants was 'excessive' and 'unjustified' and therefore fell below the trustees' legal duty to ensure funds are applied solely and prudently in line with the charity's objects.
The Commission highlighted that trustees must always act in the best interests of the charity. Conflicts of interest can lead to decisions which are not in a charity's best interests. The Commission has stressed that trustees must be very mindful when mixing their trustee role and their private business affairs, as the former chair had in this case.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
