The nine trustees of the Vassall Ward Youth and Community Project, which ran a youth centre in the London Borough of Lambeth until it went bankrupt at the end of 2006, were being sued for a total of nearly £130,000 by HMRC.
Most of the trustees were pensioners, and many claimed to have been unaware of the financial mismanagement of the charity.
Andrew Studd, a partner at law firm Russell-Cooke, said the case illustrated why charities should become corporate bodies to limit the personal liability of their trustees for losses.
"All organisations should incorporate when they take on long-term obligations such as employees or buildings," he said.
A spokesman for HMRC said it was unable to comment on individual cases.