Kids Company received winding up order over £500k tax bill a year before it closed, court hears

The charity had been warned it was in the "last chance saloon" to put its finances on a sound footing, the High Court has been told

Kids Company was issued with a winding up order over a £500,000 unpaid tax bill a year before it finally collapsed, the High Court heard yesterday. 

Camila Batmanghelidjh, the founder and former chief executive of Kids Company, was giving evidence via video link for a third day as part of a case being brought by the Official Receiver. 

The OR is seeking to secure disqualification from senior positions for periods of up to six years against Batmanghelidjh and seven other trustees of Kids Company after the charity collapsed in 2015.

Batmanghelidjh was questioned by Lesley Anderson, on behalf of the OR, about discussions she had with HM Revenue & Customs about a winding up order issued in August 2014 that amounted to nearly half a million pounds.

Anderson claimed Batmanghelidjh was “stringing along” tax officials as she attempted to negotiate a payment plan for money owed by Kids Company, and that HMRC had warned the charity it was in the “last-chance saloon” to put its finances on a sound footing. 

Anderson went through written correspondence between tax officials, Batmanghelidjh, and trustees in the period before and after the order was issued.

She suggested that the correspondence showed that Batmanghelidjh was the “decision-maker” when it came to financial matters and only informed trustees of her decisions after they were made.

Batmanghelidjh denied that was the case and maintained that she had a good working relationship with the tax office that had been “incredibly helpful” under challenging funding circumstances. 

She said that she managed the “softer side” of the relationship with HMRC, while funding decisions were dealt with by the finance committee and the charity’s directors.

But Anderson said: “We’ll see that HMRC thought you were stringing them along.”

“I wasn’t aware of that,” replied Batmanghelidjh.

Anderson read a letter from the HMRC to Batmanghelidjh that said it was the charitys last chance to put its finances on a clear footing.

She said the fact it was addressed to Batmanghelidjh showed she was not a soft ambassador. 

Batmanghelidjh pointed to the charity’s structure and how trustees were responsible for decision-making.

“You were being told its the last chance saloon,” said Anderson.

Anderson highlighted how the charity was unable to meet its payroll requirements in November 2014, and suggested that for some staff this had been an issue for months prior to that date – particularly with those on self-employed contracts.

The court heard from one former employee of Kids Company who said that the charity’s inability to pay wages on time had left him in financial hardship comparable to its beneficiaries.

Batmanghelidjh said: “When someone joined us they would be told that income arrivals are erratic and Kids Company should not be their sole source of income.”

She said it was regrettable that these “timing fluctuations” occurred.

Anderson suggested the charity was “delaying Peter to pay Paul”.

Batmanghelidjh accused the Cabinet Office of issuing misinformation about a £3m grant it was awarded at the end of July 2015, about a week before it closed.

Batmanghelidjh insisted the grant would have been used to pay staff wages if ministers had not attempted to claw the money back, as they claimed that using the funds to pay staff was a breach of the terms set out when the grant was awarded.

Anderson said that did not explain what happened at the end of 2014.

The OR had attempted to make the case that the charity was having to choose between meeting its payroll commitments or its HMRC liabilities during this period.

The court heard that from at least as early as 2010 the charity was in discussions with the government about funding.

In 2012, then-Prime Minister David Cameron promised to look at opportunities to unlock barriers to the commissioning of services for Kids Company.

The court heard another exchange from 2013 between Nick Hurd, the then-minister for civil society, and Batmanghelidjh that discussed bringing forward a £500,000 grant payment.

Hurt made clear in a letter that this was a one-off arrangement because he was not comfortable with this “going around the back” approach.

Earlier this week, the Kids Company founder had been accused of making “broken promises” when it came to short-term loan agreements. 

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