Camila Batmanghelidjh will step down as chief executive of Kids Company amid claims that the government would give further funding to the charity only if she was replaced.
Batmanghelidjh has led the charity, which provides support to vulnerable children, young people and families in Bristol, Liverpool and London, since setting it up in 1996.
In March, three of its directors resigned, with Batmanghelidjh saying their departures were the result of "extreme stress" caused by uncertainty over the charity’s funding.
A statement posted this morning on the Kids Company website said that it had received fewer donations since the start of this year, but had experienced an increase in demands on its services, with beneficiaries not able to turn to public services. "This has led to an unprecedented financial strain," the statement says.
It adds: "In recognition of the value of Kids Company’s work, successive governments since 2010 have supported the charity’s expansion, facilitating the support of more children and young people. The last government granted the charity £4.25m to contribute to Kids Company’s 2015/16 budget of £24.5m."
However, a joint report by the US internet media company Buzzfeed and the BBC has claimed that the government decided it would not give the charity an additional £3m grant to help it to restructure unless Batmanghelidjh stepped down.
A spokeswoman for the Cabinet Office said she could not comment, but the department would "continue to work with Kids Company to ensure its important work is sustainable". A spokesman for the charity said he could not comment on the suggestion. He said no formal agreement about that money had been arrived at, but "cordial discussions" between the charity and the government continued.
The charity’s statement says Batmanghelidjh will step down from her post and "assume an advocacy and clinical role after the appointment of a new chief executive". A spokesman for the charity said no timetable was set for this succession, but Batmanghelidjh would remain a paid employee of the charity.
Batmanghelidjh told BBC Radio 4’s Today programme this morning: "As a founder I think it is very important to step down and hand an organisation over for other people to run it. I was always planning to do that in the 20th year, which would have been next year."
She told the BBC that claims the charity was being mismanaged were a "red herring" to distract from the issue of funding for children’s services. In a separate interview with The Guardian, she criticised a lack of "moral fibre" in the government, saying: "Some ugly games are being played. The facts are that the vulnerable children of this country remain largely unprotected. There’s no point in shooting the messenger if the message is uncomfortable. I am being silenced."
The charity’s statement says: "In partnership with a City-based group of philanthropists, the charity is being supported by the new government to create a more sustainable organisation and funding structure that will be better able to tolerate unpredictable income streams in the future." The Kids Company spokesman said this group wished to remain anonymous.
The charity will, however, have to reduce its staffing levels, the statement says. The charity has about 450 full-time and 150 part-time staff, but the charity’s spokesman said there were no plans as yet for reductions.
Alan Yentob, chair of Kids Company, said: "Camila Batmanghelidjh and the staff of Kids Company have created a highly effective model of care and support for the most vulnerable children in society that should be recognised and valued as a national asset. The board and I, with the backing of a philanthropic group, have ensured that this is protected."