A legal challenge against a regulator’s report into the collapsed charity Keeping Kids Company should be allowed to continue following the death of its founder, the High Court has heard.

In December 2022, Camila Batmanghelidjh – who was also chief executive of the charity – was given the green light to challenge findings made by the Charity Commission about the organisation, which was wound up in 2015.

But the case was postponed because of Ms Batmanghelidjh’s ill health last year before she died aged 61 in January.

At a hearing on Thursday, barristers for Michael-Karim Kerman, the former clinical director of the charity, asked a judge to “substitute” him for Ms Batmanghelidjh in the legal action, allowing it to continue.

The commission is opposing the bid, with its lawyers stating Mr Kerman does not have “standing” to continue the legal challenge.

If this claim does not proceed with the substitute application, then the likelihood is that the claim will not proceed at all, and the (commission’s) decision will then be unchallenged but with a certain question mark over it

Alex Goodman KC, for Mr Kerman, said that Ms Batmanghelidjh wished for the case to continue and said that she and Mr Kerman “are principally seeking to do the same thing by bringing this claim, to vindicate those who are affected by the report.”

He said: “It is accepted to be a claim which is arguable.

“If this claim does not proceed with the substitute application, then the likelihood is that the claim will not proceed at all, and the (commission’s) decision will then be unchallenged but with a certain question mark over it.”

Mr Goodman said in written submissions that the report “has had a serious negative impact on the lives and reputations of those associated with Kids Company”, stating in court the claim would have continued “but for the sad passing” of Ms Batmanghelidjh.

He continued that Mr Kerman “worked closely with Ms Batmanghelidjh at Kids Company” and was “in effect her right-hand man” at the charity, is now an executor of her estate and was not “a menacing busybody or a stranger to the claim”.

Keeping Kids Company, which was also known as Kids Company or Kids Co, supported vulnerable children and young people in London and Bristol, and attracted celebrity backers including former prime minister David Cameron, Coldplay, artist Damien Hirst and comedian Michael McIntyre.

The charity’s closure came shortly after police launched an investigation, which was later dropped, into unfounded allegations of abuse and exploitation at the charity following the broadcast of a BBC Newsnight report.

A High Court judge then rejected a bid to ban Ms Batmanghelidjh and seven ex-trustees from being company directors in 2021.

But in February 2022, the commission published the results of a statutory inquiry into its collapse and found there was “mismanagement in the administration of the charity” over the failure to pay creditors, including its own workers, on time.

Keeping Kids Company had operated a “high-risk business model” and trustees allowed spending to increase without a secure stream of income to cover increased costs or mitigate an unexpected fall in fundraising, the regulator said.

At a hearing in 2022, Ian Wise KC, for Ms Batmanghelidjh, said that she argued that the report made “unwarranted, irrational and unreasonable” criticisms of her and the charity which were “tainted by predetermination” and therefore unlawful.

The commission opposes the legal challenge, with the court previously told that its findings were fair and supported by evidence.

There are persons, namely the trustees, who are better-placed claimants that have chosen not to challenge the report

Tom Hickman KC, representing the regulator on Thursday, said in written submissions that the case was “extremely stale”.

He added that the report “does not criticise (Mr Kerman) explicitly or implicitly” and that its “status is now officially ‘withdrawn’”.

He said: “The applicant does not have standing.

“He has no direct interest in the claim and there are persons, namely the trustees, who are better-placed claimants that have chosen not to challenge the report and there has been (a) considerable delay, albeit without fault, in the claim being progressed.”

Mr Justice Swift will give his judgment in writing at a later date.