The Charity Commission moved to block Croydon Council's bid to take control of Fairfield Halls, a report has revealed.
The regulator expressed concerns about the council's plans to acquire 75 per cent of voting rights on the venue's board, essentially making it a local authority controlled company, which it said could jeapordise the organisation's charitable status.
The proposals were announced in April but scrapped later last year.
It has now emerged that the commission wrote to Fairfield - the charity that runs the venue - to raise concerns that the takeover could allow the council to run Fairfield Halls in accordance with its own interests rather than those of the charity.
A report on the Charity Commission's investigation into the takeover, published yesterday, said: "Many local authorities are involved in charities as sole corporate trustees. This is not a concern, because trustees have a clear legal duty to make decisions in the charity’s best interest.
"However, members of charities have no such obligations; they can act in their own interests, rather than the interest of the charity.
"The proposal was therefore of regulatory concern to us, because it would have effectively meant the take-over of the charity by the local authority in a way that allows the authority to influence decisions made by the charity in its own, rather than the charity’s interests.
"This raised questions as to the future charitable status of the organisation."
The commission wrote to Fairfield last year to enquire about the level of control the takeover would hand the council and any legal advice the charity had taken.
It also asked for copies of minutes from trustee meetings to understand why the charity's board had decided to enter into negotiations with the council.
The council subsequently withdrew the proposals.
It had previously said stated that, should the takeover not go ahead, it would reconsider the level funding given to the charity as "there is a risk to the future viability" Fairfield Halls, but in January denied this was the case.
The council-owned venue is rented by Fairfield using grants from the council.
Work on £27m refurbishments to the venue are due to begin in November.
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