After-school childcare charity Catz Club is considering relinquishing its charitable status and becoming a community interest company instead.
It was forced to take back an illegal £7,500 Labour Party donation last year and is subject to an ongoing Charity Commission inquiry into internal financial controls and overdue accounts.
The charity denied the move was linked to the regulator's long-running investigations. "We began discussing this before we were aware of the commission's inquiry," said Tony Mitchell, the US-based chair of Catz Club, whose loans are keeping it afloat.
A commission spokeswoman said it had spoken to the trustees of the charity about its proposal to become a CIC but could not comment further.
Phil Horrell, a spokesman for the CIC regulator, said only five charities had converted to the new legal form, which is subject to a community interest test, since it was created in 2005.
Catz Club's 2007/08 annual report, received by the commission last month, reveals losses of £337,000 compared with £5.6m the previous year. This was mainly achieved by closing 150 of its 210 after-school childcare clubs and increasing its
income from £1.5m to £2.3m. But total liabilities exceed £13m.
Mitchell said he had no intention of calling in his loans and was pleased that the charity, which trades as Schoolfriendetc, had significantly reduced its losses. "The goal was to become self-sustaining, which we have achieved," he said.