Decision

Charity Inquiry: The Public Safety Charitable Trust Limited

Published 23 April 2020

This decision was withdrawn on 29 April 2022

This report has been withdrawn as it is over 2 years old.

The charity

The Public Safety Charitable Trust was registered on 15 October 2010, and is a company limited by guarantee governed by a Memorandum and Articles of Association dated 29 September 2010.

The charity’s entry can be found on the register of charities.

The charity’s operational model was to broadcast public service messages to the local community via Bluetooth equipment, which would be situated close to shopping centres in towns and cities across the United Kingdom.

The charity took out leases on empty properties and placed the Bluetooth equipment in these properties. The charity stated this equipment broadcast public service messages to passersby. The charity then claimed the 80% mandatory charity relief on the Business Rates levied on the properties, and in most cases the further 20% discretionary relief. The charity did so, on the basis that the properties were occupied for charity purposes.

The landlords of empty properties are liable for the Business Rates levied on their properties and thus occupation of the properties by the charity meant that the landlords had significantly reduced costs. In recognition of this the landlords of the properties would make a donation to the charity.

Issues under Investigation

The Commission opened a Regulatory Compliance case into the charity in October 2011 after concerns regarding Business Rates relief claimed by the charity were raised by several local authorities. The investigation focussed on the charity’s operating model that resulted in the landlords of commercial properties avoiding liability to pay Business Rates and whether the charity operated in furtherance of its objects for the public benefit.

Further concerns with regard to the risks to the charity’s assets arose as a result of a court judgement on 14 May 2013. The judgement established that where a charity installs and operates Bluetooth transmitters in premises which it occupies under a lease and has no other occupation, this will not be sufficient to be construed as occupation wholly or mainly for charitable purposes.

Premises which are occupied wholly or mainly for charitable purposes are eligible for Business Rates relief in accordance with the provisions under the ‘charitable exemption’ criteria created by section 43(6)(a) of the Local Government Finance Act 1988. Consequently, the charity was liable for the Business Rates on the premises it had leased and following this judgement was liable for approximately £17 million of Business Rates.

The Commission opened a statutory inquiry into the charity under section 46 of the Charities Act 2011 on 21 May 2013.

The inquiry closed with the publication of this report.

Scope of the Statutory Inquiry

The inquiry was opened to examine:

• whether the trustees have been discharging their legal duties and responsibilities as charity trustees
• the risk of potential significant loss (to the charity)
• whether the charity is being used for the benefit of commercial companies
• damage to the reputation of the charity

Inquiry placed on hold whilst the Insolvency Service conducted an investigation

Before the inquiry got fully under way, a compulsory liquidation petition was issued by the Insolvency Service on 23 May 2013 and the winding up of the charity began on 8 July 2013 with the Official Receiver being appointed as liquidator of the company. They were also tasked with investigating the conduct of the directors/trustees.

On 8 July 2013 the inquiry was placed on hold, pending the outcome of the Insolvency Services and the Official Receiver’s investigation and any subsequent proceedings.

The Insolvency Service investigated the conduct of the directors/trustees, Mark Ferguson and Christine Sutton, and found their conduct warranted a disqualification under section 7 of the Company Directors Disqualification Act 1986.

Mark Ferguson was disqualified for a period of 9 years commencing on 25 May 2017 and Christine Sutton was disqualified for a period of 5 years, commencing on 15 July 2015.

As a consequence, both trustees are also disqualified from being charity trustees or holding any positions that have senior management functions within a charity for the same period.

The Liquidators took action against one of the former directors for misfeasance, and an agreement was reached with this director.

Following confirmation that the Liquidators action against the former trustees had concluded, the inquiry resumed on 20 January 2020.

The charity is due to be dissolved once the Liquidator has completed the final report, and it will then be removed from the register of charities.

Whether the trustees are discharging their legal duties and responsibilities as charity trustees

The inquiry found that the trustees contracted with Commercial Link Ltd (“CL”) as the sole provider of the Bluetooth technology, equipment and services to the charity.

The inquiry found that there was evidence that the trustees did not have control over the charity’s records, and that CL appeared to have been undertaking the administration of the charity. Whilst trustees can delegate the administration of their charity to employees or a service company they remain ultimately responsible for the management of the charity.

During a meeting with the trustees on 23 November 2012 (‘the meeting’), the trustees were asked about having access to the charity’s records: they gave vague answers which suggested that they did not have regular access to the charity’s records, and they did not keep minutes of all trustee meetings held. This is evidence of the trustees’ failure to comply adequately with their legal duties and responsibilities.

Risk of potential significant financial loss

The charity was subject to on-going legal challenges with local authorities regarding the validity of the claims for Business Rates relief. During 2012, the charity was taken to court by three local authorities. One magistrates court ruled in favour of the charity, whilst the other two ruled in favour of the local authorities.

All three of the magistrates decisions went to the Court of Appeal, whose judgement issued on 14 May 2013 was that the placing of the Bluetooth technology within the leased premises was not sufficient to be construed as occupation wholly or mainly for charitable purposes. This decision meant that the charity was liable for the Business Rates on the properties it had leased.

The inquiry was informed that following the magistrates’ court rulings against them, the trustees sought independent legal advice, which suggested that the charity would be successful in any appeal. The trustees did not provide the inquiry with evidence to demonstrate they had made properly considered decisions which were in the interest of the charity. The fact that the legal proceedings were ongoing raises questions about the subsequent decisions taken by the trustees to enter into further leases, thereby potentially exposing the charity to further significant financial risk.

During the meeting, the trustees stated that CL would pay any legal costs and any liability orders which were enforced in connection with the Business Rates issue; however they did not provide any documentary evidence to this effect. At the meeting the trustees referred to a Framework Agreement with CL.

The inquiry has reviewed this agreement, but it contained no reference to the payment of legal costs or liability orders. The inquiry found the trustees had not provided any evidence to demonstrate that they had acted in the charity’s best interests in leasing a number of properties for the purposes as outlined above and subjecting the charity to the risks of financial loss.

Whether the charity is being used for the benefit of commercial companies

At the time of the opening of the inquiry the charity had approximately 2,000 leases for properties in 240 local authority areas. The Framework Agreement between the charity and CL appeared to be very much in favour of CL, in that 95% of the money received by the charity from the Landlords for the leasing of the properties went to CL and the remaining 5% went to the charity.

The trustees explained during the meeting that the Framework Agreement did not appear to cover the whole arrangement between CL and the charity, such as the agreement that CL would pay the liability for any Business Rates. In the inquiry’s view it would have been very difficult for the charity to enforce such an agreement if it was not set out in the written Framework Agreement.

The trustees indicated that they had no intention of re-negotiating the Framework Agreement despite the risks which arose because it did not include the important provision that CL would bear the costs of any Business Rates that became payable. Although subsequently a variation of the Framework Agreement dated 1 March 2013 reduced the money which went to CL from 95% to 60%.

The trustees also considered that there was no need to stop taking on new property leases that became available. The trustees failed to consider the risks of the on-going legal action adequately and the inquiry found that the trustees’ decision-making process was flawed and put the charity at risk of losing significant assets.

Issues that could damage the reputation of an individual charity

During 2012 there had been wide-spread media interest in Business Rates cases and this charity was the subject of articles within local and national newspapers. Charities are held in high esteem by the general public, and trustees must ensure they do not enter into agreements that could jeopardise that public trust. The inquiry found that the trustees were not able to demonstrate that they made decision for the public benefit and as a result the charity’s reputation was harmed.

Conclusions

The inquiry concluded that there was evidence of misconduct and/or mismanagement in the administration of the charity due to the poor financial management and governance in the charity. The trustees made decisions which exposed the charity to risk of liability for Business Rates. They continued to lease properties, despite ongoing legal challenges to the operating model they had adopted which further exposed the charity to risk and the charity did not have the resources to meet these liabilities. The trustees also failed to maintain adequate control of charity records.

Regulatory Action Taken

On 23 May 2013 the inquiry issued an Order under s52 of the Charities Act 2011 to the charity’s bank to obtain bank statements.

The charity is now in liquidation. As the Insolvency Service’s investigation, resulted in the disqualification of the charity’s trustees as well as giving consideration to pursuing the recovery of the losses incurred by the charity, the Commission concluded that it was not necessary for the inquiry to take any further regulatory action in this regard.

Issues for the wider sector

The purpose of this section is to highlight the broader issues arising from the Commission’s assessment of the issues raised publicly that may have relevance for other charities. It is not intended as further comment on the charity in addition to the findings and conclusions set out in the earlier sections of this report but is included because of their wider applicability and interest to the charity sector.

The Commission is not responsible for enforcing compliance with Business Rates obligations or for recovering outstanding Business Rates debts. However, there are significant risks for charities and trustees that are approached by retailers or their intermediaries or landlords of hard to let property to enter into tenancy agreements that would relieve the landlords of the requirement to pay full Business Rates.

If the charity is not making sufficient and proper use of the premises for charitable purposes which would attract the business rate relief, then it may be liable for the full business rate liability.

It is legitimate for trustees to delegate the day to day management of a charity to staff and others. However, charity trustees always retain the ultimate responsibility for running the charity and should ensure that robust reporting procedures are in place to enable them to make reasonable decisions. Trustees must exercise their duty of care in taking proper decisions, and not allow the good name of charity to be abused for the benefit of commercial companies.

Charities are held in high esteem by the general public, and trustees must ensure they do not enter into agreements that could jeopardise that public trust. Responsibility for ensuring they have sufficient information and are adequately informed in order to make decisions rests with the charity trustees.