Ed Davey has accused a trustee of a learning disability care home of embezzlement and called for watchdogs to take over the charity to resolve a crisis he described as “one my worst nightmares”.

The Liberal Democrat leader’s intervention at prime minister’s questions came hours after the Guardian revealed the Charity Commission has opened a serious inquiry into concerns around financial mismanagement and potential misuse of funds at William Blake House.

Families of residents at the Northamptonshire-based care home raised the alarm with the authorities after discovering that it faced imminent closure after running up a £1.6m unpaid tax bill and paid its chair of trustees £1m in consultancy fees.

The home, one of only a handful of specialist providers of its kind in the country, cares for 22 adults with severe learning disability. Most are non-verbal and require round the clock care. It relies on more than £3m a year in council and NHS funding.

The Guardian revealed the parlous state of the charity’s finances this month, and the audacious bid by a group of families of residents to take over the running of its services after they lost confidence in the board of trustees.

Davey told MPs: “It’s been revealed that a trustee of William Blake House, a care home for adults with profound disabilities, embezzled £1m. There are very few homes in the country that offer this sort of care and now it faces closure.

“As a father of a disabled son myself can I tell the prime minister that this situation is one of my worst nightmares, and it’s one of the worst nightmares of many parents with disabled adult children.”

Davey called for the Charity Commission to appoint an independent board to take over the running of William Blake House and for ministers to step in to persuade HMRC to halt a court action to wind up the charity due in five weeks’ time.

He called on Keir Starmer to back a rescue plan put forward by a group of families with loved ones at William Blake House. Starmer agreed to meet the families, adding: “Can I thank him for raising this case, which is obviously a cause of considerable concern.”

The Charity Commission has confirmed it will launch an inquiry examining “serious concerns around possible financial mismanagement” at William Blake House, including the robustness of its financial controls and whether the charity’s property is or has been put at risk.

It will also consider the charity’s handling of potential conflicts of interest involving trustees, whether its trustees have experienced any unauthorised personal benefit, and whether it has been run in line with its own governance rules.

The inquiry is likely to examine payments totalling £1m in consultancy and strategy fees to a company solely owned by its chair, Bushra Hamid. The charity’s assets shrank from £920,000 to £200,000 between 2022 and 2024, while its auditors repeatedly warned trustees the charity was not a viable business.

William Blake House’s board has blamed its financial difficulties on high agency staff costs and the failure of local authorities to raise care fees in line with inflation. It plans to settle its tax debts by selling land to a developer.

Hamid has been approached for comment.

The commission’s decision to rapidly upgrade the status of its investigation into William Blake House to a formal inquiry just weeks after opening a lesser regulatory check into the governance concerns at the charity.

A formal section 46 inquiry, such as the one recently launched by the commission, is its most serious form of investigation. It is not in itself an indication of wrongdoing but reflects significant concerns over alleged misconduct or mismanagement in the running of a charity.