A charity that provides support and grants to voluntary organisations in Manchester is going into liquidation because it is unable to pay back funding demanded from it by the European Commission.
The existing contracts of Voluntary Action Manchester, and the staff associated with them, are being transferred to a new, independent community interest company called Third Sector Essentials.
VAM has been in dispute with the commission since a 2002 audit of a grant programme the charity ran on behalf of the European Social Fund showed it did not have the correct paperwork for all the money it had distributed.
"Two years before I joined VAM, we distributed about £600,000 for the ESF through what we called the Acorn Project," said Rob Arnold, director of VAM. Many of the grants went to small organisations, such as mother and toddler groups, he said.
"At the time, for some reason, receipts weren't kept for all those grants," said Arnold. "When the commission audit found we couldn't produce receipts, they told us we had six months to do so or we would have to give the money back.
"This was almost four years after some grants were originally given, and it was virtually impossible to track down this paperwork. We found some receipts, but we weren't able to produce the paperwork for £138,000.
"The commission has said we have to pay that much, but we can't afford to do so."
Arnold said his organisation had gone to court about it. "The judge was sympathetic to us, but he said he couldn't rule on European matters," he said. "It became clear that, even after eight years, this wasn't going to be resolved, so we decided to shut down instead."
Arnold said he was not yet sure who would lead the new organisation.
A spokeswoman for the European Commission said it had no comment to make at this time.