A decision of the commercial court this week sheds light on the obligations of a trustee of the insolvency of a defined benefit (DB) pension scheme.

In Greene v. Coady (Unreported, High Court, Charleton J. 4/2/13) the plaintiffs were beneficiaries of a DB pension fund of Element Six Ltd. The defendants were trustees of the fund.

Element Six Limited (hereinafter the employer) had 359 employees in 2012 but the parent company operated in other jurisdictions including South Africa and owned the de Beers companies.

The scheme had 58 pensioners, 173 active members and 375 deferred members in 2011.

Clause 9 provided inter alia

No decision of the exercise of power by the trustees...shall be invalidated or questioned on the ground that the trustee... had a direct or personal interest in the result of any such decision or the exercise of any such power.

Under clause 14 of the trust deed, the employer had covenanted to pay such contributions as were payable under the rules of the trust deed to the trustees upon written demand. However, the employer could terminate liability with one month's notice in which case it was liable to pay any contributions or expenses which had become payable prior to the expiry of the notice and pay expenses in connection with the determination of the plan.

In 2008 the DB scheme had a funding deficit of €100 million. At that point the company made a funding proposal to last until 2020, which was to pay over €10 million per annum into the scheme (hereinafter the funding proposal payment). In late 2011 the employer indicated it would not be contributing the funding proposal payment for 2012 and offered to close the scheme and pay €37.1 million (€23.1 million into the DB scheme and €14 million into a new defined contribution scheme for active members). The employer said there was a risk that the site at Shannon would be closed with the loss of jobs if the offer was not accepted. At that point the trustees actuary advised on the possibility of a contribution demand notice. The advantage was a possible better return for the beneficiaries. The disadvantage was that the Shannon plant might be closed with the loss of jobs and also there was no guarantee that the liquidation of the employer would yield more than €37.1 million.

The trustees accountant's evidence at the time was that they could gain between €18m and 42.5m in liquidation as compared with the €37.1m offered and that sum might constitute a preferential debt on liquidation.

The trustees got advice from an actuary, accountant and solicitor and accepted the offer (hereinafter the acceptance) with the consequent liquidation of the fund. Three company nominee trustees voted in favour of the acceptance and three worker nominees voted against. The chairman exercised the casting vote in favour of the acceptance and the deal was done.

During the course of the trial it emerged the employer had authority to offer €40M to the trustees and the court was critical the employer was not forthcoming with this at the time but this did not determine the issues.

The plaintiff argued that the trustees were in breach of trust in failing to make a contribution demand notice in the sum of €129.2 million to make up the funding deficit.

The court found the trustees decision could only be condemned if it the trustees:-

  1. had acted dishonestly,
  2. did not act not in good faith,
  3. did not take into account all relevant considerations or excluded irrelevant considerations
  4. the decision was one that no reasonable body of trustees could have made.

The court found the trustees were not in breach of trust.

The court found the trustees were not in breach of duty in failing to refer the matter to the High Court for directions before acceptance since the option of applying to the court for directions was not so clearly the right thing to do that to no reasonable trustee would have failed to do so.

The plaintiff cited Robins v. Secretary of State for Work and Pensions 2007 ECR 1053 and Hogan v. Minister for Social and Family Affairs Case C398/11 and argued that if a contribution demand notice had been served on the employer, the employer could then have been liquidated and if on liquidation the beneficiaries did not get 50% of their entitlement, they could have sued the state thus netting them to at least 50% of their entitlement. The court rejected this argument because the Hogan case had not been decided at the time the trustees made their decision.

The court found that the funding proposal of €10.725 million per year over 11 years did constitute a binding contract which could have been sued on by the trustees, when reneged on by the employer in January 2012, and that the total sum would have been a preferential debt in liquidation. Nevertheless, the court said that the trustees did not act unreasonably in making the acceptance taking into account the expert evidence as to what they might recover on liquidation. The trustees had a reasonable apprehension that assets would be moved from the employer company to other related companies.

As to the specific conflict of interest arguments the court found

  1. The plaintiff argued that four of the trustees had an interest in the employer continuing to stay in business in Shannon and were therefore conflicted. The court rejected this because one employee did not plan to stay in employment much longer and another employee was likely to move with the company abroad, if needed. These conflicts were unavoidable and were contemplated as required to be decided by the trustees from the inception of the trust. The trustees were entitled to take into account the benefit of continued employment to active members in Shannon and the benefit of the €14 million being contributed to a separate defined contribution scheme for the benefit of active members.
  2. The court found that a decision by the employer to pay a dividend of €19M to a shareholder company, of which two trustees were directors, played no role in their decision as trustees.

The court held that clause 9 of did provide trustees with a defence to the conflict of interest claim once the trustee did not act in breach of the general trust principles at a-d above .

The court found the decision of the trustees was not one which no reasonable body of trustees could have made and was within the range of what might be considered a reasonable response to a very difficult situation.


The court found that the trustees will be afforded due deference in their decision making, provided they don't act in breach of the principles a - d above.

The exemption from liability for trustees in the trust deed may be effective if the plaintiff tries to show a breach of trust outside of the parameters of a - d above.

The court afforded considerable scope to the range of issues the trustees could take into account in arriving at their decision. Where different beneficiaries have different interests, the trustees are entitled to look at the benefits that might flow to some beneficiaries but not others in judging the value of an offer made by the employer.

The court found, albeit obiter, that an agreed funding proposal by the employer can constitute a binding contract which can later be sued on by the trustees and which sum could constitute a preferential debt in liquidation.

The decision shows the value in the trustees seeking the advice of a competent actuary, accountant and solicitor in situations where the employer proposes to wind up the scheme and the value in maintaining a paper trail in relation to same.

The decision not to refer the matter to the High Court for directions was not impugned in this case, where the trustees were under clear time pressure from the employer. In other cases, where this time pressure does not exist, the safer course may be to refer the matter to the High Court for directions.

Given the value of this case, it may well be appealed to the Supreme Court.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.