Al Jamia Al Islamia (The Islamic Institute Notts)

Registered Charity No. 1019803

This is a statement of results of an inquiry under section 8 of the Charities Act 1993 as amended by the Charities Act 2006 (“the Act”) and published on 25 January 2008.

The Charity

1. Al Jamia Al Islamia (‘the Charity’) was established as an unincorporated charity in 1992 for the promotion of the Islamic faith and the study of the Holy Quran through the provision of an educational establishment, including a facility for boarding students. It was registered as a charity in April 1993. Although the Charity has not carried out any charitable activities for some years, it has retained its property in Flintham, Notts.

Source of Concern

2. September 2000 the Commission contacted the Charity’s trustees because the Charity had an annual income exceeding £10,000 but had not submitted accounts, as required by the Charities Act 1993. Further enquiries made by the Commission revealed other concerns about the trustees’ poor administration. These included property transactions that resulted in a loss to the Charity, the Charity’s financial position and the past and present administration of the Charity.

Commission inquiry

3. Commission opened an inquiry under section 8 of the Charities Act 1993 in June 2001 in order to investigate these concerns further.

Issues

4. The inquiry was opened to look at the following issues:

• the allegation that one trustee was dominant to the exclusion of the other trustees, and that he had been responsible for committing the Charity to transactions not in its best interests;
• concerns relating to the Charity’s financial position, and to its past and present administration.

Timescale of inquiry

5. The inquiry was opened in June 2001 and closed in May 2005.  The investigation of the issues covered by the inquiry was largely completed by late 2001.  However, because the Charity was defending a personal injury claim, the inquiry was put on hold until May 2005 in case this necessitated further regulatory action by the Commission.  Throughout, developments relating to the Charity’s affairs were being monitored.

6. The publication of this statement was deferred until the trustees resolved major legal issues relating to the Charity’s property and affecting its future, including settlement of the Charity’s liability relating to the personal injury claim brought against the Charity. This has now been concluded, and the Commission is now in a position to publish.

Findings

7. In 1992 the Charity acquired a property (based in Flintham, Notts) and raised a significant sum of money from members of the local Islamic community who gave donations and made loans for the refurbishment of the property. This property was used as an educational facility and housed boarding students, but by the late 1990s it was proposed that it be sold and the Charity should move to smaller premises in Manchester.

8. The Charity has since been defending a lengthy and complex High Court action relating to the personal injury claim that arose as a result of an accident on the Charity’s premises at Flintham in January 1993. The Charity did not have the appropriate third party insurance in place. Therefore, the trustees needed to consider selling the property in order to meet the liability, ultimately determined as £537,000.

9. In August 1998 the trustees paid over an initial deposit of £10,000 on the Manchester property, followed later by a further £44,000, on the basis that it would raise the remainder of the purchase price of approximately £1m from the sale of the Flintham property; but the sale did not proceed due to legal action and to an associated Court Order made in December 1998. As a result, refurbishment costs estimated at around £50,000 incurred by the trustees, as well as the deposit, were lost. The Charity’s chairman confirmed that no professional advice or valuation was obtained prior to entering into an agreement to purchase the Manchester property.

10. During the course of the inquiry the Commission received allegations of dominance by the Chairman. It was said that he had appointed family members as trustees, that he regularly failed to consult the other trustees about some aspects of the Charity’s business and that he had attempted to sell the Flintham property without the approval of the trustees. The inquiry confirmed that the Charity’s governing document conferred a degree of supervisory authority upon the Chairman, but that did not give him unfettered discretion to act without the approval of the other trustees.

11. The Commission found that the Chairman had been dominant. He denied this, but admitted that he sometime acted single-handedly and this had caused some trustees to resign. He was unable to provide evidence that proceedings at meetings had been adequately recorded, nor that he had always consulted the other trustees when taking important decisions.

12. The trustees had allowed the property to fall into a state of disrepair and did not have an appropriate insurance policy on the property. In addition to the trustees breaching requirements for submitting accounts to the Commission, in the absence of several years’ accounts the Charity’s financial position was unclear. Over £650,000 had been borrowed from individual members of the Islamic community and the Charity had a significant bank overdraft, but income was declining.

Conduct of inquiry

13. The Commission met with trustees of the Charity, and carried out numerous detailed discussions with the Charity’s professional advisers in regard to a number of longstanding issues relating to the Charity’s affairs.

14. Whilst the Commission was limited in its ability to progress matters due to a number of factors, in particular the legal proceedings in connection with the personal injury claim, it addressed the concerns and monitored action taken by new trustees in their attempts to address the Charity’s problems.

Conclusions

15. The Commission concluded as a result of the inquiry that the trustees had failed to manage the Charity effectively, or to protect its assets and interests sufficiently.

Regulatory action taken

16. Order to protect the Charity’s property, in August 2001 the Commission made an Order under section 18 (1) (vi) of the Act preventing the chairman from entering into any transaction in the administration of the Charity without the Commission’s prior consent.

17. The Commission also made Orders under section 18 (1) (iv) of the Act in September 2001 to freeze the Charity’s main bank accounts. The effect of that was that no payment could be made out of those accounts without the Commission’s consent.

18. In the light of the Commission’s concerns with regard to the Charity’s administration, it identified and interviewed prospective additional trustees. Following that process, the Commission made Orders under section 18 (1) (ii) of the Act in September 2001 to appoint five additional trustees to act alongside the remaining trustees. By Orders made under section 18 (1) (6) of the Act, also in September 2001, the property at Flintham was vested in the new trustees in addition to the existing trustees. The Orders did not affect the role of the existing trustees, who continued to have trustee duties and responsibilities.

19. In October 2001 the Commission took the further protective measure under section 18 (1) (i) of the Act of suspending the chairman as a trustee, pending consideration being given to his removal as a trustee. However, he died during the period when he was suspended as a trustee.

20. In order to ensure that the Charity did not increase its liabilities at a when its solvency position was precarious, in March 2005 the Commission made Orders under section 18 (1) (iv) and (vi) of the Act preventing trustees from entering into any transaction in the administration of the Charity without the Commission’s prior consent or from parting with any of the Charity’s property.

21. The March 2005 Orders also vested the property at Flintham in the Official Custodian for Charities, using section 18 (1) (iii). A principal function of the Official Custodian for Charities (who is a member of the Charity Commission’s staff) is to act in a similar role to that of a custodian trustee for charities in respect of any charity land which is placed (or “vested”) in the Official Custodian.

Impact of Commission intervention

22. As a result of Orders made by the Commission at various stages throughout the inquiry, using its powers under section 18 of the Act, the Commission ensured that the Charity’s assets were protected.

23. Following the appointment of new accountants by the Charity, audited accounts for the four years ended 31 August 2003 were sent to the Commission, but the auditor’s reports were qualified in the context of inadequacy of financial records.

24. As a result of the Commission’s intervention and of its guidance, the trustees recognised that they must fulfil their obligations to the Charity and to the Charity's creditors. Once the Commission was satisfied that the trustees were capable of discharging their duties, the Commission discharged those Orders, and the Charity’s main bank accounts were unfrozen. This enabled the trustees to resume control of the bank accounts and exercise their duties and obligations. At that time the inquiry was closed, because the Commission concluded that to maintain the inquiry would not assist the trustees with the steps then required.

25. However, the Charity’s remaining property at Flintham is still vested in the Official Custodian for Charities. Because the Commission used its regulatory powers under section 18 of the Act in that respect an effect is that, for so long as the property remains so vested, the Official Custodian must be made a party to any conveyance, transfer, lease or other deed which concerns the disposal of that property. This is not the case when charities ask the Commission to use its enabling powers to vest property, under section 21 of the Act. This has the advantage that, in effect, the property cannot be disposed of without the Commission’s assent.

Resources applied

26. This inquiry was open for approximately four years and the Commission took regulatory action on a number of occasions. The inquiry, and the Commission’s subsequent monitoring of progress made by the trustees, were resource intensive and involved input from a number of Commission caseworkers and other staff who have worked in close co-operation with the Commission’s internal legal and accountancy teams.

Actions required of the trustees

27. The Commission’s expectation when the inquiry was closed, and during the course of its subsequent monitoring of progress made by the trustees, was that the trustees would carry out the following important matters through to a conclusion:

• acting generally in accordance with any advice and guidance provided by the Commission to the trustees as to their duties and responsibilities as trustees;
• settling the Charity’s liabilities and ensuring its solvency;
• planning for the Charity’s future, including examining the benefit of a merger between the Charity and another charity with similar objects;
• ensuring that adequate insurance is in place in respect of the Charity’s property and activities.

28. In the light of recent progress in settling the personal injury claim and in addressing a number of legal impediments to disposal of the Charity’s property, the trustees can now concentrate on determining the future of the Charity. Options that the trustees are investigating include the merger of the Charity with another charity with similar objects, and the sale of the whole or part of the Charity’s land. In view of the likely lengthy process in carrying through such options the Commission has decided to close the case, and to leave the trustees to decide upon the Charity’s future with the input of professional advice. However, the Commisison will establish what further progress has been made by monitoring and reviewing in six months’ time.

Lessons for other charities

29. Is the fundamental duty of all charity trustees to protect the property of their charity and to secure its application for the objects of the charity. In order to discharge this duty it is essential there are adequate internal financial and administrative controls over the charity’s assets and their use.

30. If a charity owns land or buildings, its trustees need to know on a continuing basis what condition it is in, that it is being properly used, and that adequate insurance is in place not only for loss of property but also in respect of owner occupier’s liability or any other issue that ought to be covered. The trustees of a charity have a duty to protect and safeguard the property of the charity not only from direct loss or damage but also from third party liabilities which would otherwise have to be satisfied out of the property of the charity. If trustees unreasonably fail to discharge this duty they may be personally liable to make good the charity's losses.

31. Trustees are responsible for the overall management and administration of a charity and must ensure that they act at all times within the provision of their governing document.

32. A charity is entitled to the independent and objective judgement of each of its trustees, acting solely in the interests of the charity. Trustees who simply defer to the opinions of a dominant trustee are not carrying out their duty to the charity. A case in which a dominant trustee effectively deprives a charity of the benefit of the considered judgement of the other trustees is an example of poor governance amounting to mismanagement.

Para	Issue	Charity Commission guidance and relevant legal obligation
8, 30	Safeguarding charity property	CC3 The Essential Trustee
10	Dominance of one trustee	CC3 The Essential Trustee
11	Absence of minutes of meetings	CC48 Charities and Meetings
12	Failure to submit annual accounts etc	CC61 Charity Accounts: The framework
29	Duty to have adequate financial controls	CC8 Internal Financial Controls For Charities
21,25	Vesting in the O.C.	CC13 The Official Custodian for Charities Land Holding Service

Date of Publication: 25/01/2008