A High Court judge has ruled a pension arrangement designed to provide security for unfunded top-up pensions should stay in place, without needing the approval of shareholders.
The decision was made in an appeal on a case held in the High Court between Granada Group and the Law Debenture Pension Trust.
In 2000, Granada's non-executive directors agreed that security should be granted in support of top up contractual arrangements that had already been made by Granada in favour of its executive directors.
As such, a secured unfunded unapproved retirement benefit scheme was set up by Granada for the benefit of some of its executive directors.
Law Debenture Pension Trust was set up as the trustee, and was granted a charge over securities which could be enforced, if Granada failed to pay the top-up pensions.
In 2014, Granada sought a declaration that the scheme was voidable, due to the fact shareholder approval had not been obtained.
This claim was under the Companies Act 1985, which states where directors of a company of a person connected with the directors acquire a non-cash asset above a prescribed value, shareholder approval must be obtained.
In the original decision, the judge held the directors did not acquire any property or interest in property in the gilts themselves. All they had was a right to compel the trustee to administer the trust.
As such, any right of Granada's ability to use and enjoy its assets was held by the trustee, not the directors.
Additionally, the judge went on to hold the right of the directors to compel the trustee to enforce the trust was dependent on a number of factors, and as such could not be reliably valued.
Granada's appeal stated the directors had the benefit of Granada's promise to pay them benefits.
However, there was no contract between Granada and the directors, the only undertaking to pay the benefits was the undertaking given by Granada to the trustee.
Lord Justice Lewison in the appeal questioned whether the trustee was acting in its capacity as trustee under a pension scheme.
Granada argued the trustee was no more than a security agent for the directors, however Lord Lewison did not accept this argument.
He said in his decision: "The only capacity in which the trustee could have been entitled to require and hold that security was as trustee of the scheme."
As such, he reached the same conclusion as the judge and dismissed the appeal.
ruth.gillbe@ft.com
