Decision

Charity Inquiry: Manor Building Preservation Trust Limited

Published 2 November 2021

This decision was withdrawn on 10 November 2023

This report has been archived in line with our policy as it is over 2 years old.

Applies to England and Wales

The Charity

Manor Building Preservation Trust (“the charity”) was incorporated with Companies House on 24 June 1999 and registered with the Commission on 14 June 2004. It was struck off the Register of Companies and removed from the Register of Charities (“the Register”) on 5 January 2021.

It was governed by a memorandum and articles of association dated 24 June 1999.

The objects of the charity were “to preserve for the benefit of the Nation, the historical, architectural and constructional heritage that may exist in buildings (including any building as defined in Section 336 of the Town and Country Planning Act 1990) of particular beauty or historical, architectural or constructional interest”.

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

At the time the inquiry was opened there were four trustees in office and three of them were family members: Cyril Smith (father), Matthew Smith (son) and Mariya Smith (daughter in law). The fourth trustee was appointed shortly before the opening of the inquiry and has never been actively involved in the administration of the charity, nor was he involved in the mismanagement and/or misconduct which is set out in this report.

The Inquiry

On 3 June 2016 legal advisors representing Cyril Smith, a trustee proactively contacted the Commission to raise concerns about how the charity was being run. Cyril Smith’s concerns included allegations of unauthorised trustee remuneration, private benefit arising from the purchase of cars valued at £80,000-£100,000 and also the occupation of Goldington Hall, a charity owned property. The allegations implicated both Mr Cyril Smith and his fellow trustees Matthew Smith and Mariya Smith, who were his son and daughter in law. Due to the serious nature of the regulatory concerns raised by the allegations, on the same day that the allegations were received, the Commission acted to open a statutory inquiry under section 46 of the Charities Act 2011 (“the Act”).

The scope of the Inquiry was to examine the following:

• whether the charity’s objects were being met and that the charity was operating for the public benefit in particular due to the apparent extent of the private benefit issues
• the financial controls, management and application of the charity’s funds, property and assets and whether there had been any misconduct and/or mismanagement by the trustees and consider whether remedial regulatory action was necessary
• the administration, governance and management of the charity by the trustees, particularly whether the trustees had acted prudently and exercised reasonable care in respect of the day-to-day running of the charity
• whether or not the trustees have complied with and fulfilled their duties and responsibilities as trustees under charity law

On 21 July 2016 the Commission appointed an Interim Manager (‘IM’) to take over the operational management, governance and administration of the charity and its property to the exclusion of the trustees. The IM was discharged on 5 January 2021 following the removal of the charity from the Register.

The inquiry closed with the publication of this report.

Findings

The inquiry’s findings are based on information provided by the trustees and the reports submitted by the IM.

Whether the charity’s objects were being met and that the charity was operating for the public benefit:

Goldington Hall

A charity can buy property in order to further its purposes, for example to renovate historic properties for the public to enjoy or purchase property as an investment to generate additional resources by way of rent or to renovate and sell on in order to make a profit to be applied in furtherance of the charity’s purposes.

The trustees purchased Goldington Hall (“the Hall”), in 2010 as a renovation project and a method of generating revenue for the charity.

The inquiry found that Cyril Smith, Matthew Smith, Mariya Smith and other family members occupied the whole of the Hall rent free, from 2010 when the charity purchased the property until they vacated the premises following a court process to evict them, instigated by the IM (see paragraph 18).

The household costs of the Hall, including utility bills, phone and internet expenditure were paid for by the charity and never reimbursed by any of the trustees who occupied the premises. For example, between 2011 and 2016, the inquiry identified £18,000 of expenditure on power and £12,841 in phone and internet expenditure.

The inquiry found the restoration of the property was completed prior to December 2014, and there was no legitimate reason why the trustees and their family members continued to reside in the property after that date.

The trustees informed the inquiry that their occupation of the Hall acted as a form of security service; in that it was kept in use. However, an alternative security arrangement could have been implemented and the Hall opened to the public under the supervision of the charity. In addition, any such limited benefit to the charity was outweighed by the private benefit derived by the trustees and family members, living in the Hall rent free. Neither was there any evidence that the trustees considered any alternative options for ensuring the security of the Hall to satisfy their legal duty to make decisions properly.

The inquiry found that the trustees did not act in the best interests of the charity by living on the premises, and the property was being treated as their family home. This did not meet the objectives of the charity and constituted significant personal benefit.

The IM determined that it was not in the best interests of the charity for the trustees to continue to occupy the Hall and took steps to gain vacant possession of the property. Following an eviction process involving the courts which ruled in the charity’s favor, Matthew and Mariya Smith did not contest the court proceedings and vacated the property one day prior to the court hearing on 20 August 2018. Cyril Smith (who made a counterclaim in the proceedings which was unsuccessful, vacated the property on 19 January 2019.

The financial controls, management and application of the charity’s funds, property and assets

The inquiry found that charity funds were used to purchase and maintain high value cars (including Bentleys and Land Rovers), which were registered under the legal ownership of individual trustees, and used for private benefit with no, or very little benefit to the charity. For example, the inquiry identified the purchase of a Bentley Continental in July 2012, in part exchange of an older Bentley following a payment of £44,925 by the charity for the trade in. The acquired vehicle was registered in the name of trustee Matthew Smith, rather than the Charity’s name, and he was the registered keeper.

In August 2016, the IM seized and sold the charity’s Bentley and the charity received £51,720 in relation to the sale.

The inquiry further identified £40,883 was spent by the charity for service costs, DVLA plate transfers and insurance on the two Bentleys between 2011 and 2016 and a further £19, 663 for costs on other pool cars (Range Rovers). Whilst it is not unusual for a charity to incur costs in relation to vehicles, there was no satisfactory explanation as to why the trustees needed to use high value cars or put them into the legal ownership of the trustees and, some or all this expenditure represents a misapplication of charity’s funds that gave rise to significant personal benefit.

The inquiry also found that the charity paid for entertaining, travel and subsistence expenditure that was not necessarily for the benefit of the charity but partially or solely for the personal benefit of the trustees. Between 2011 and 2016, the Inquiry identified:

• £17,655 of entertaining expenses with little or no evidence that this amount was properly incurred by the trustees on behalf of the charity
• £20,300 on travel and subsistence. There was no information to evidence the amounts reimbursed to the trustees for the travelling costs

Additionally, the charity did not have any form of policy in relation to expenses or a procedure for claiming expenses. The inquiry was not provided with any evidence to demonstrate the trustees considered any of the expenses claimed and whether they were reasonably and properly incurred. Furthermore, as the trustees were all related to each other, they were not in a position to make a quorate non-conflicted decision in respect of the payment of any of the expenses claimed.

Charity funds used to finance planning application for land owned by trustee

The inquiry found £31,220 of the charity’s funds had been spent on professional advice regarding the potential development of a plot of land owned by one of the trustees Matthew Smith, who was seeking to build a “significant property” which was “to be used as a domestic family home”.

The charity’s meeting Minutes of 19 May 2015 show that Matthew Smith donated the land to the charity for development. However, there was no legally binding agreement which recorded this donation and therefore no way of ensuring the charity’s interests in the land were protected. The minutes record the unanimous decision of the (conflicted) trustees that the charity would provide “all the necessary project costs, up to and including the granting of an acceptable planning consent on the site”.

The trustees claimed that the transfer did not go ahead because it was brought to their attention that under paragraph 55 (of the National Planning Policy Framework) an application for planning permission would have to be made in the name of the individual i.e. the trustee as opposed to the charity (which would mean the permission would lapse if the land was gifted to the charity).

If the charity had determined it appropriate to commit expenditure to the planning process, relying on the trustees promise that the land would be gifted to the charity, the “investment” should have been protected by way of a charge over the land. No such charge was lodged with the Land Registry and the land was never transferred to the charity.

The inquiry found that the use of charity funds to seeking professional advice regarding potential planning permission for a development of land owned by a trustee was not in furtherance of its objects and was an inappropriate use of funds for personal benefit. In addition, no regard was had to the inherent conflict of interest in the involvement of three trustees who were all related to each other.

Overseas Property

The inquiry found the charity made an aborted effort to purchase a 9th century castle in Granada, Spain, known as Láchar. When asked by the inquiry the trustees were unclear as to whether the purchase was intended to further the charity’s objects or to acquire an investment property. No evidence was provided to the inquiry to demonstrate the trustees had sought any investment advice in relation to the purchase of this property. In addition, the inquiry noted that the purchase of a property in Spain would not be in furtherance of the charity’s objects given they are restricted to preserving property in a domestic as opposed to international setting.

The local Spanish government body would not allow the charity to purchase the property. The inquiry identified £4,667 in funds expended by the charity in connection with this aborted purchase.

The Inquiry found that the charity also purchased two residential properties in Ukraine in 2006/2007 which again did not further its objects and the charity suffered a loss in relation to these purchases. The charity’s accounts for the year ending 30 June 2010 valued the properties at £109,282 and the properties were held in the name of one of the trustees, who was a Ukrainian national. The trustees told the inquiry that they were investment properties purchased with the intention of selling the properties after two years. The inquiry found the charity did not receive any rental income for the properties.

If the expenditure on the above properties was to be justified on the basis that they were intended as investment properties, the inquiry found no evidence that the trustees had regard to, or discharged their investment duties, particularly those to exercise due care and skill and consider the suitability of the investment for the charity.

In February 2017, the IM sold the properties in Ukraine and the total received by the charity in relation to the sales was $96,420, (1 USD = 0.802 GBP) less legal fees, resulting in a loss to the charity of approximately £50,214. This loss was due to a combination of the decline in the Ukrainian property market and the lack of demand for the properties in that region. In addition, registration formalities for one of the properties had not been dealt with fully on purchase which increased the costs of disposing of the properties.

The administration, governance and management of the charity by the trustees

The inquiry found that between 2011 and 2016 two of the trustees together received £128,017 (net payments) in salary for the supply of services which comprised managerial and maintenance and repair work to the Hall and the grounds (Mathew Smith), and managerial, accountancy and cleaning of the Hall (Mariya Smith).

The role of a trustee is generally voluntary, and any remuneration must be authorised by a provision in the charity’s governing document, by the Commission or by the Court. Clause 5.2 and 5.3 of the charity’s Memorandum of Association does set out a provision which in certain limited circumstances would authorise the payment of benefits to trustees.

However, the trustees did not provide any evidence to show that any of the exceptions in Clause 5.2 and 5.3 were applicable. The charity was paying PAYE and National Insurance contributions relating to both trustees which indicated they were not supplying services but were employed by the charity.

The inquiry found that the payments of wages to the trustees were not authorised and were in breach of the charity’s Memorandum of Association and an inappropriate use of the charity’s funds which constitutes misconduct and/or mismanagement. Furthermore, the level of payment received by both trustees was disproportionate particularly given the charity engaged in a relatively small amount of activity during the period between 2011 and 2016, and the trustees enjoyed the benefit of living at the Hall with other family members rent free.

Whether or not the trustees have complied with and fulfilled their duties and responsibilities as trustees under charity law

The charity’s loan schedules for the year ending June 2015 shows a loan of £7,413 to Mariya Smith, made by her to a local garage in respect of the purchase of a Land Rover Discovery to which the trustee then attached a personalised number plate.

Although there is evidence that would suggest that Mariya Smith paid back the loan, the inquiry was not provided with any evidence to demonstrate that the loan to the trustee in relation to the purchase of a Land Rover was in the best interests of the charity, or that the appropriate charity or company law procedures were undertaken, (particularly those as to conflict of interest) in relation to the loan.

The only evidence that the trustees considered the loan is the minutes of the trustee meeting dated 13 February 2015, purporting to authorise the loan to the trustee, which in particular, demonstrates a lack of understanding as to conflict of interests by all of the trustees. All the trustees were conflicted because they are all closely related to each other. In such circumstances, where the provisions of the governing document are inadequate, the Commission would have to authorise the directors to do something that would otherwise breach the duty to avoid the conflict of interest. At no time did any of the trustees approach the Commission to request the authority to make the loan to the trustee.

Conclusions

The Commission concluded that there was serious misconduct and/or mismanagement in the charity’s administration and management. There was evidence of significant personal benefit with the trustees living at the Hall and the property was being treated as their family home. Furthermore, the trustees failed to ensure that the charity was adequately carrying out its purposes for the public benefit. It was further concluded that there was no regard to identifying and managing conflict of interests, including in relation to payments made for the purchase and the use of high value cars, expenses, and the payment of wages to two of the charity trustees.

Due to the misconduct and/or mismanagement by the trustees the inquiry took regulatory action and on 7 April 2020 removed the Cyril Smith, Matthew Smith and Mariya Smith from acting as the charity’s trustees. No action was taken against the fourth unrelated trustee who was appointed after the mismanagement and/or misconduct set out in this report occurred.

The IM determined that it was appropriate to close the charity on the basis that the operational structure of the charity, even if overseen by a new board of trustees, would not result in an effective use of charitable funds for the public benefit. The charity was taken off the Companies House Register and removed from the register of charities on 5 January 2021.

Regulatory Action Taken

During the course of the inquiry a number of directions were made under sections 47 and 52 of the Act to gather information relevant to the inquiry.

On 3, 8 and 30 June 2016 orders were made under section 76(3)(d) of the Act to freeze the charity’s bank accounts.

On 8 June 2016 orders were made under section 76 (3)(d) and section 76 (3)(f) of the Act directing the trustees not to part with any charity property held on behalf of the charity and restricting them from entering into any transactions without the Commission’s prior written consent.

The charity’s books and records were inspected on 4 July 2016.

On 21 July 2016, an order was made under section 76(3)(g) of the Act appointing an IM Jonathan Brinsden of BDP Pitmans LLP to act in the administration of the charity to the exclusion of the trustees.

On 14 November 2016, section 76(3)(d) and section 76(3)(f) orders of 8 July 2016 not to part with property and restricting transactions were discharged once the IM assumed control of the charity’s property.

On 9 August 2017 the Order to appoint the IM was varied to appoint Penny Chapman of BDP Pitmans LLP as IM and discharge the appointment of Jonathan Brinsden also of BDP Pitmans LLP.

On 7 April 2020 the Commission exercised its powers under s79(4) of the Act and removed Mathew Smith, Mariya Smith and Cyril Smith as trustees of the charity.

On 3 July 2020 an order was made under section 85 of the Act directing the IM to transfer the charity’s assets to The Landmark Trust.

On 5 January 2021 the charity was removed from the Register of Charities and the IM was discharged.

IM appointment

On 21 July 2016, the inquiry used its temporary protective powers under s76(3)(g) of the Act to appoint Jonathan Brinsden, of BDP Pitmans LLP as Interim Manager (‘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.

Due to unforeseen circumstances, Jonathan Brinsden was unable to continue in his role as IM. Consequently, on 9 August 2017 the Order to appoint the IM was varied to appoint Penny Chapman as IM in his place, and the appointment of Jonathan Brinsden was discharged.

The IM obtained control of the charity’s assets and determined it should be wound up. To implement this strategy, it was necessary to evict the Smith family from the Hall. During this process consideration was also given to whether action should be taken to pursue recoveries from the Smiths in relation to the unauthorised benefits they had received. The IM determined that this was not a financially viable option.

The IM also assessed claims made by Cyril Smith that he had loaned £348,000 to the charity. The IM disputed this liability and defended the claim successfully at court and Cyril Smith was ordered to pay the charity’s legal costs of £48,000. Mr Cyril Smith failed to abide by the Court Order and the IM determined that it was not financially viable to pursue Mr Smith for the recovery of the £48,000.

The IM considered whether or not to pursue restitution. The IM determined that it was not in the charity’s best interests to pursue any claims that the charity may have against the trustees, given the significant costs and time that would be incurred in doing so.

The IM transferred the Hall and the remaining charity funds (£222,244) to the Landmark Trust after identifying it as being a charity with similar objects.

The costs of the IM’s appointment, including legal advice and fees that would have been necessary and incurred by any trustee, amounted to £328,816 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 Interim Manager: £86,382.80
• professional fees: £204,341 (including accountancy, counsel and surveyors’ fees)
• in addition, £38,092.20 of work was undertaken by the IM on a pro bono basis

The inquiry notes that the costs of the appointment would have been significantly lower has the IM not had to defend the claim made by Cyril Smith or instigate formal eviction proceedings through the courts to obtain vacant possession of the Hall from the Smiths.

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.

Trustees have a legal duty to ensure that their charity’s funds are applied solely and reasonably in furtherance of its objects. Therefore, in order to show that they are complying with their legal duties, trustees must keep records and an adequate audit trail to show that the charity’s money has been properly spent on furthering the charity’s purposes for the public benefit.

The law states that trustees cannot receive any benefit from their charity in return for any service they provide to it or enter into any self-dealing transactions unless they have the legal authority to do so. This may come from the charity’s governing document or, if there is no such provision in the governing document, the Commission or the Courts. Further information is available from Trustee expenses and payments (CC11).

Trustees have a legal duty to act in the charity’s best interests when making decisions as a trustee. If there is a decision to be made where a trustee has a personal interest or other interest, this is a conflict of interest and you won’t be able to comply with your duty unless you follow certain steps.

For example, if you are a trustee, you would have a conflict of interest if the charity is thinking of making a decision that would mean:

• you could benefit financially or otherwise from your charity, either directly or indirectly through someone you are connected to
• your duty to your charity competes with a duty or loyalty you have to another organisation or person

Where a charity trustee has a conflict of interest they should follow the basic checklist set out in the Commission publication Conflicts of interest: a guide for charity trustees (CC29) and where necessary or appropriate take professional advice.