In September 2008, the commission opened an inquiry into the Saint Stephen the Great Charitable Trust (‘the trust’), set up in 2005 and Saint Stephen the Great (‘the company’), set up in 2007.

The main activities of both charities were to purchase disused churches in order to ensure their future use as churches within the Orthodox Christian faith.  They acquired one church in Poole and one in Bradford from the Church of England at a nominal price on the basis that they would be used primarily for Christian worship.

In November 2006 the trust agreed with the Society for Promoting Christian Knowledge (SPCK) that SPCK would transfer 22 Christian bookshops to the trust for nil consideration. The terms of the agreement imposed a number of requirements on the trust, including purchasing a minimum number of publications from SPCK for each of the shops and keeping the shops operational as Christian bookshops.

However, the commission received a number of complaints from members of the public about the way the charities were operating.  These included the concern that in in February 2008 the company or trust appeared to have transferred £31,800 to a company in the US of which some of the trustees were directors, while in June 2008 the company had filed for bankruptcy in the US, leaving staff and creditors of the trust and the company with concerns that they would not be paid.

At around the same time the trust transferred management of the shops from the company to three separate management companies; this led to former employees bringing claims against the trust and the company for unfair dismissal. In September 2008 the trust had sold a freehold property, potentially in breach of the agreement, while there were allegations that the churches owned by the trust were not operating and the shops were failing, and that the trust and the company were exposed to substantial financial liabilities.

Having opened a statutory inquiry, the commission appointed an interim manager to take over the management of the trust and deal with ongoing litigation including 34 redundancy claims made by the shops’ ex-employees. This resulted in trust assets of £3.23m being safeguarded from exposure to significant liabilities, while multiple complex claims totalling £4.17m were managed and around £2m was disbursed in settlement of claims.

Based on the interim manager’s findings, the commission’s inquiry identified unmanaged conflicts of interest intrinsically linked to the trust’s administration, while transactions committing charitable funds to connected entities appeared to constitute self-dealing.

The commission found that in February 2007 the company’s directors had passed a resolution to contract with another American company which would provide management services at a fee of £20,000 a month. The resolution did not clearly differentiate between the company and the trust or address how the company’s directors managed the conflict of interest as some of the trustees were also directors of the American company.

In February 2008 the company’s directors resolved for the company and/or the trust to accept a loan from the American company. It was unclear from the paperwork as to whether the loan was intended for the trust or the company. The trust and company’s directors were three members of the same family.

One of the trustees and another member of the family were also directors of the three management companies who had taken over the running of the shops and another family member was the secretary. One of the trustees was also a director of the American company contracted to provide services and a principal at the legal firm providing advice to the company.

Therefore, the commission’s investigation found there were many occasions which raised conflict of interest and loyalty issues. The inquiry also identified the potential for trustee benefit and self-dealing by some trust and company trustees.

The inquiry found that the trust had failed to keep proper records since 2008 and there was a failure on the part of the trustees to undertake due diligence before entering into the agreement with SPCK.

The interim manager concluded that it was in the trust’s best interest for it to be wound up with surplus assets transferred to charities with similar objects. The sale proceeds of £144,486 from the trust’s church at Bradford were passed to Orthodox communities, while the church at Poole was transferred to another charity. The trust was consequently removed from the register in March 2014. 

Michelle Russell, director of investigations, monitoring and enforcement at the Charity Commission, said: ‘This has been a long investigation that has been hampered by poor record keeping and complicated by the number of claims and connected party companies and transactions.

‘This case is a clear reminder for charities of how difficult it can be to manage its business and deal with conflicts of interest properly where there are number of different companies involved in running different aspects of the charity’s activities and there are a number of related and/or conflicted trustees.

‘Charities should be clear about which body has what role - especially when contractual liabilities are created. Trustee boards should ensure that there are an adequate number of conflicted trustees who properly scrutinise third party transactions and appropriate policies and procedures which are followed to actively manage any potential situations in which their personal interests could conflict with their duties as trustees.’