Coventry Culture Trust: Potential misconduct identified

Business Secretary Kemi Badenoch has been informed of potential misconduct within Coventry City of Culture Trust prior to its collapse, it has emerged.

The trust, which ran Coventry City of Culture 2021, had total income of around £45m but collapsed in February 2023 with debts of more than £4m. Since then administrators have been working to sell off assets to try to pay back creditors as well as investigating the circumstances of the collapse, with forensic accountants being hired to assist.

In an update on the progress of winding down the trust, Joint Administrator Michael Kienlan said investigations are ongoing. "At this time I cannot fully disclose details of these matters so as not to prejudice any potential future actions". Kienlen said in the report.

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“A further responsibility of the Joint Administrators is to report to the Secretary of State on any matters that come to their attention that could lead them to conclude that any past or present director may be unfit to be involved with managing the affairs of a company in the future.

"This report is confidential and it is a legal requirement that I do not disclose the contents of this report," he said.

"I will continue with my investigations into the company's affairs and provide updates to the Charity Commission and Secretary of State accordingly."

No formal allegation of misconduct has been made and nothing has been proven. However, It is a statutory requirement for administrators to report as soon as they become aware of anything that could lead them to conclude unfit practice may have taken place.

This takes the form of a D1 report which requires details of potential unfit conduct to be listed, alongside the name of the director or directors involved and supporting evidence.

Once a report has been provided to the Secretary of State it is down to The Insolvency Service to consider the evidence and decide whether it is in the public interest to investigate further and potentially seek for a director or directors to be disqualified.

Disqualification proceedings

Directors can be barred from running companies in the UK for up to 15 years through civil action. There is also the potential for criminal proceedings in certain cases.

According to The Insolvency Service website there is no definitive list of misconduct that may lead to disqualification, but examples include failing to keep appropriate accounting records, failing to ensure the company is properly run, and fraudulent behaviour.

The latest Administrator's report also reveals that the cost of investigating the circumstances of the collapse is rising.

An intial budget of £25,000 for legal support from solicitors in relation to the investigations has been exceeded, with the work now being billed on an hourly basis.

"As the investigations work is ongoing, it is currently unknown as to what [the solicitor's] total costs will equate in respect of this work," the report states.

Meanwhile, a monthly fee is being paid to an IT firm to download the trust's emails for the purposes of the investigation, a process that is taking "much longer than expected due to the volume".

And £16,800 of costs for forensic accountancy services have been incurred from a total of £25,000 set aside.

A report by the National Audit Office, published in July, found the trust first recognised it had financial problems in May 2021.

On 24 August 2021, the trust told Arts Council England and DCMS it was facing "acute financial difficulty", warning that it would "struggle to remain a going concern".

It was not until October 2022 that details of financial difficulties were eventually made public, with the trust blaming a combination of lower than expected income and increased costs stemming from the Covid pandemic. The trust went on to enter administration in February 2023.

A spokesperson for The Insolvency Service said the body is not able to comment on any of its investigatory activity.

* This article was amended on 14 December to make clear that no formal allegation of misconduct has been made and nothing has been proven.