Charity ordered to sell off multimillion-pound plot of land after being unable to service debt

The Charity Commission ordered a charity to dispose of a plot of land worth millions after it found the organisation was unable to service debts on more than £7m in mortgage and loan repayments.

The regulator said in a new report that it opened a compliance case into the poverty and education charity Nanaksar Thath Isher Darbar Trust in 2014 because of a number of regulatory concerns, including the failure to submit annual accounts for the year ending 31 March 2013.

In the previous month the Education and Skills Funding Agency had published a report that identified multiple issues of concern regarding the charity's relationship with the Guru Nanak Sikh Academy, a multi-academy trust consisting of the Guru Nanak Sikh Academy and the Nanaksar Primary School, both in Hayes, West London.

At the time, the charity’s trustees held the freehold and leasehold of the land occupied by GNSA.

The 2013 accounts were eventually submitted in December 2015.

The auditor found weak and informal financial controls, procedures and processes, and unsatisfactory record-keeping and classification of loans and donations, the regulator said.

The trustees were also in arrears on their repayments of loans and mortgages of more than £7.1m, secured against the sites occupied by GNSA.

By January 2016 the balance outstanding to one bank was £3.4m, and the bank was seeking to take action to recover the funds.

The charity had further unsecured loans of £850,000.

There was therefore a risk to the charity’s property from foreclosure and a risk that the community could lose its temple and school, according to the commission.

In addition, the London Borough of Hillingdon initiated legal action in March 2016 as the trustees failed to comply with the terms of an enforcement notice issued in October 2015 regarding the £1.4m purchase of a football ground in Hayes.

The charity planned to build a school on the site, but this was not possible because of an underground gas pipeline.

Trustees then proceeded to turn the site into a car park at a cost of £50,000, but they had failed to obtain the required planning permission, the regulator said.

As a result, the commission said it opened a statutory inquiry in April 2016 because trustees had also failed to engage with the issues raised during the compliance case.

As the majority of the charity’s mortgages and loans were secured against the school sites, in September 2017 the commission ordered trustees to transfer the land to the GNSA for the sum of £2.8m, almost half its stated value.

The commission’s report noted that while the sale price was significantly below the value of the land, the terms of the transfer would clear the charity’s principal debts and further its objects.

The land transfer was completed in September 2018.

As of 31 March 2020 the charity had a total income of just under £1.2m and a total expenditure of about £507,000.

In its conclusion, the commission said: “There has been significant mismanagement and/or misconduct in the administration of the charity by the trustees.

“The trustees have failed to understand the duties and responsibilities of a trustee and their actions have fallen well below the standards of governance that the commission expects.

“The mismanagement and/or misconduct had the impact of putting the charity’s assets at risk and creating a risk that its beneficiaries would lose access to the school and temple.”

The regulator said it still had some serious concerns, but it would continue to monitor trustee performance following a plan agreed in November last year.

In a statement the charity said: The trustees have noted fully the content of this report and accept its findings, which follows a lengthy investigation process with which the trust has fully co-operated.”

The charity said it had restructured, put new governance arrangements in place and appointed new trustees with experience in corporate management and banking.

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