Decision

Charity Inquiry: Achiezer

Published 19 August 2022

Applies to England and Wales

The charity

Achiezer (‘the charity’) was registered with the Charity Commission (‘the Commission’) on 8 April 1964 and was an unincorporated charity governed by a Declaration of Trust dated 15 February 1964.

The charity was removed from the Commission’s register of charities on 7 April 2022 and is recorded as a removed charity

The charity’s objectives were:

• for the relief of such persons being aged, impotent and poor at the trustees discretion
• without prejudice to the generality of the foregoing words by making loans to poor persons, repayable by instalments, free of interest
• for any other purposes which are beneficial to the community and charitable.

The trustees of the charity were three brothers, David Chontow, Sidney Chontow, and Michael Chontow. Michael Chontow passed away prior to the opening of the inquiry and David Chontow passed away in September 2020.

Issues under Investigation

The Commission first opened a statutory inquiry into the charity on 11 November 2013 when it was included in the ‘Double Defaulters Class Inquiry’; a statutory inquiry opened into a class of charities that had failed to comply with the statutory duty to submit accounts and annual returns, having failed to submit accounts and returns for the financial years ending (FYE) 5 April 2010, 5 April 2011 and 5 April 2012.

During that class inquiry further regulatory concerns were identified in the charity and a second charity named Achiezer Association Ltd (registered charity number 255031), which had the same trustees. This contributed to the opening of a separate class inquiry on 23 June 2015 into the charity and Achiezer Association Ltd (‘the inquiry’) .

The inquiry examined the following regulatory issues:

• the administration of the charities by the trustees, particularly in relation to whether the trustees have fulfilled their legal duties and responsibilities as charity trustees
• the financial management of the charities to determine whether the trustees have failed to properly manage the charities’ funds and therefore, have put the charities’ funds and assets at risk

In response to the further regulatory concerns identified by the inquiry, Geoffrey Carton-Kelly and Jason Baker, of FRP Advisory LLP were appointed as Interim Managers on 30 October 2018, to take over the operational management, governance and administration of the charity and its property to the exclusion of the trustees. The Interim Managers were discharged on 11 April 2022 following the removal of the charity from the Register.

This report sets out the findings of the inquiry in relation to the charity only as the investigation into Achiezer Association Ltd is still on going.

Findings

Trustees’ compliance with legal obligations for the preparation and filing of the charity’s accounts and other information or returns

The inquiry found that the trustees consistently failed to comply with their duty to ensure the charity is accountable to the public and its beneficiaries, having failed to file all of the charity’s annual accounts on time for 5 consecutive years between 2010 and 2014. The charity’s accounts were finally submitted on 2 December 2015, after this inquiry had opened.

The inquiry further found that despite being subject to a statutory class inquiry for failing to submit accounting information, the trustees had once again failed to comply with their statutory duty to file annual reports and accounts with the Commission within the statutory deadlines, for FYE 5 April 2017.

On 25 September 2018 an Order under section 84 of the Act was made directing the trustees to take certain actions, including to submit the overdue annual return, trustee’s annual report and accounts for the FYE 5 April 2017. The trustees failed to submit these financial records by the deadlines specified within the Order.

Whether there were any benefit to the private business interests of the trustees

Dasim Partners

The inquiry identified that between April 2014 and September 2016 the charity made payments totalling £129,800 to Dasim Partners (‘Dasim’), a property development company of which Sidney and David Chontow were partners. The inquiry found that the basis of these payments was unclear and it was impossible for the charity to manage the conflicts of interest which arose regarding these transactions because there were no independent trustees.

Bury Metropolitan Borough Council

The inquiry found that Bury Metropolitan Borough Council (‘Bury Council’) had obtained a liability order against the charity for £58,809.47 in respect of business rates for 3 warehouse units for the period 1 April 2012 to 28 February 2014.

The trustees appealed the liability order and argued that there was evidence of occupation for charitable purposes. During these proceedings, the trustees admitted that for most of the period, the charity had occupied the warehouses and would therefore be liable for business rates.  However, the trustees claimed the charity was entitled to 80% charitable relief for the period of its occupation.

Bury Council claimed that the charity’s occupation of the warehouses was not wholly or mainly for charitable purposes and so did not qualify for charitable exemption from business rates.  Bury Council had obtained evidence to support this claim including photographs taken by their inspectors that suggested there was no occupation at all apart from the storage of some pallets during the period.. The Court found for Bury Council on the basis that it was not satisfied that the charity had occupied the warehouse wholly or mainly for charitable purposes and therefore did not qualify for charitable exemption and as such the charity was liable for the sum to be paid, together with costs.

The inquiry found the Landlord of the premises was Potential Investment Portfolio, of which Sidney Chontow was a partner. If the property had remained unlet the liability for business rates would have fallen on the Landlord i.e. Potential Investment Portfolio. Once the warehouses were let the liability for business rates fell on the tenant i.e. the charity. As the charity was unincorporated, Bury Council proceeded to issue statutory demands to the trustees personally.

The trustees confirmed £18,000 of the liability had been paid by Dasim, on behalf of the charity, and the remaining balance was settled in full by Sidney Chontow.

Whilst the business rates were eventually paid to Bury Council, the inquiry found Sidney Chontow had received a benefit from this arrangement by attempting to avoid the business rates that would have been payable for the unoccupied warehouses. The trustees should have been more careful when entering into this lease to avoid incurring such a large liability.

Whether the trustees have failed to properly manage the charity’s funds and therefore, have put the Charities’ funds and assets at risk.

£100,000 from Finsbury Trust

The charity’s accounts for FYE 5 April 2010 recorded an interest free loan of £100,000 within the Creditors section of the Notes to the Financial Statements. This interest free loan continues to be recorded in subsequent accounts until FYE 5 April 2016. The accounts for FYE 5 April 2017 recorded a donation of £100,000 from ‘Finsbury Trust’.

The trustees informed the inquiry that the interest free loan was subsequently converted to a donation but were not able to provide any documentation in regard to this transaction. The financial analysis conducted by the inquiry reviewed the charity’s bank statements for the corresponding period but did not identify a £100,000 deposit. Despite further investigations and repeated requests for evidence, the inquiry has not been able to confirm the identity of ‘Finsbury Trust’ or been unable to locate any evidence that the charity received funds from this organisation.

No charity bank account

The charity was the registered freeholder of 18 properties that generated an income from ground rents for the charity. The inquiry obtained confirmation from a firm of estate agents that they continued to manage these properties on behalf of the charity. The estate agents confirmed that ground rents on these properties were collected and paid to Dasim, as instructed by the trustees.

The inquiry found that the charity’s bank accounts known to the Commission had all been closed, with the last one was closing in September 2016.

As part of the section 84 Order issued on 25 September 2018, the inquiry directed the trustees to pay all funds, including cash and cheques held by and collected on behalf of the charity into a UK bank account held in the name or on behalf of the charity and provide the inquiry with evidence that the funds have been deposited.

On 12 October 2018 the trustees confirmed that despite attempting to open a new bank account for the charity with five different banks over the previous six months they were unable to do so. The Interim Managers were able to open a bank account for the charity within 6 weeks of their appointment. The inquiry found that the trustees’ failure to ensure the charity had a bank account represented a clear risk to charitable funds.

The inquiry obtained a schedule of ground rents from the estate agents which detailed two payments to Dasim, one for £3,361.65 and the other for £7,189.44 made on 17 January 2017 and 22 January 2018 respectively.

These payments were received after the closure of the last of the charity’s bank accounts known to the Commission. At a meeting with the inquiry the trustees confirmed that these two sums were paid to Dasim. The inquiry was not able to reconcile these payments with any other subsequent payment from Dasim to the charity.

Related Parties and Conflicts of Interest

The trustees were not only trustees of Achiezer Association Limited but were also the directors of its wholly owned trading subsidiaries, Gebedee Limited and Dove and Fein Limited. The trustees were also the directors of a company called Dasim Developments Limited, in addition to Sidney and David Chontow being the partners of Dasim.

The inquiry found that there were numerous complex related party transactions between the charity, Achiezer Association Limited, the trading subsidiaries and the trustees’ personal companies. Given the close family connection, there was no way of effectively managing the inherent conflicts of interest which arose in these transactions between the entities. One example was a payment of £1,556.40 made by the charity on 26 May 2016 to a local council for business rates on a property owned by Gebedee Limited.

Conclusions

The Commission concluded that there was serious misconduct and/or mismanagement in the administration of the charity due to the poor financial management and governance, including the trustees’:

• failures to comply with their statutory duty to file annual reports and accounts with the Commission within the statutory deadlines. In addition, a failure to submit accounts to the Commission within the required time scale is a criminal offence under section 173 of the Charities Act 2011 (‘the Act’)

• failures to comply in full and within the deadline of an Order and Directions of the Commission
• decisions which exposed the charity to risk for a liability for Business Rates which appeared to benefit the private business interests of one of the trustees

The Commission further concluded that the trustees did not distinguish between the charity and the other entities they were connected with and there was no way of effectively managing the inherent conflicts of interest.

The Commission further concluded that the actions of Sidney and David Chontow, in this charity and Achiezer Association Ltd, were significantly below that expected from trustees and they were both removed as trustees of Achiezer Association Ltd by an Order pursuant to section 79(4) of the Act on 25 August 2020. As a consequence of this Order the trustees were disqualified from acting as a charity trustee or a trustee for any other charity under the provisions of section 178 Charities Act 2011.

Regulatory Action Taken

The Inquiry exercised the Commission’s regulatory powers under sections 52 and 47 of the 2011 Act on multiple occasions to obtain further information and copy documents, including from the trustees and the charity’s bank(s).

On 25 September 2018 the Commission issued an Order under section 76(3)(f) of the Act restricting the trustees from entering into any transaction in the administration of the charity or permit or authorise any other person to enter into any transaction in the administration of the charity without the written approval of the Commission.

On 25 September 2018 the Commission issued an Order under section 84 of the Act directing the trustees to complete a number of actions including paying all funds into a designated charity bank account and provide evidence of the deposits and to submit the accounts and annual return for the FYE 5 April 2017.

On 30 October 2018 the Commission issued an Order under section 76(3)(g) to appoint joint Interim Mangers to the charity to the exclusion of the trustees.

On 3 July 2019 the Commission issued an Order under section 337(6) of the Act to revoke the section 76(3)(f) Order.

On 11 April 2022 the Commission issued an Order under s337(6) of the Act to revoke the section 76(3)(g) Order.

Interim Manager Appointment

On 18 October 2018, the inquiry used its temporary protective powers under section 76(3)(g) of the Act to appoint Geoff Carton-Kelly and Jason Baker, of FRP Advisory as joint Interim Managers (‘IM’) to take over the operational management, governance and administration of the charity and its property to the exclusion of the trustees and to take any steps necessary to secure the property of the charity.

The IM obtained control of the charity’s assets and investigated the complex related party transactions and obtained an up to date schedule of rents in order to ensure the charity was receiving the full rent due from its property portfolio. Once this was completed the IM took the decision to wind up the charity. To implement this strategy, it was necessary to sell the 18 freehold properties, which was completed by auction on 31 October 2020. Once legal and professional fees had been paid the charity received £623,000.

The IM determined that it was not in the charity’s best interests to pursue any claims that the charity may have against the former trustees, given the significant costs and time that would be incurred in doing so. Additionally the one remaining former trustee had agreed to pay the balance of the liability to Bury Council, which was settled on 20 October 2021.

The costs of the IM’s appointment, including legal advice and fees that would have been necessary and incurred by any trustee, amounted to £225,742.92 excluding VAT. The cost of the IM’s appointment was met out of the charity’s funds and are itemised as follows:

• fees directly related to work as IM: £133,500
• professional fees: £92,243.25 (including legal fees, auction costs, estate agent and surveyors’ fees)

The IM distributed the remaining charity funds of £429,819.22, equally between three charities which were identified as having similar objects to the charity.

Whilst the trustees maintained a professional demeanour in their engagement with the inquiry and the IM, the inquiry notes that the costs of the appointment would have been significantly lower had they provided all the information/confirmation that they are legally required to do by deadlines provided, including the statutory accounting deadlines and Directions of the Commission.

Issues for the Wider Sector

The purpose of this section is to highlight the broader issues arising from the Inquiry 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.

Trustees of charities are under a legal duty as charity trustees to submit annual updates, returns, annual reports and accounting documents to the Commission as the regulator of charities depending upon the level of the charity’s income. Failure to submit accounts and accompanying documents to the Commission is a criminal offence. The Commission also regards it as mismanagement and misconduct in the administration of a charity.

Charity trustees must comply with Orders and Direction of the Commission. In some circumstances it may be a criminal offence (or contempt of court) for a charity or a trustee to not comply with an Order or direction of the Commission.

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 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.

Conflicts of interest are more likely when there are only a small number of trustees on the board, when trustees are closely related, or when the charity has dealings with organisations in which the trustees have interests. It is vital that trustees avoid becoming involved in situations in which their personal interests may be seen to conflict with their duties as trustees. The trustees should put in place policies and procedures to identify and manage such conflict. Further guidance and advice is available from our guidance on conflicts of interest.