Forbes Trustee Services Ltd & Anor v Jackson & Ors

When trustees seek directions about voting on a restructuring proposal, the court must not substitute its own decision for theirs. The court must ask whether the trustees have considered all relevant matters, excluded irrelevant or impermissible considerations, and reached a conclusion which a reasonable body of trustees could reach on the material available. Trustees may reject a proposal where actuarial evidence indicates unfairness between beneficiary groups, inadequate or uncertain recovery, or prejudice to statutory and contractual rights. The court may give general permission or directions while preserving the trustees’ discretion. It need not resolve every underlying legal or valuation issue where the trustees’ decision is otherwise properly open to them.

The trustees of the T&N Retirement Benefits Scheme sought directions concerning whether they could vote against a Chapter 11 restructuring plan proposed for the Federal Mogul group. The plan offered alternative treatments for the Scheme’s claims, including a delayed Let it Run option and immediate dividend-based treatment.

The trustees considered that the plan failed properly to recognise the employers’ obligations and might yield less than a controlled realisation of assets through English insolvency procedures. A related application by the English administrators had been addressed by David Richards J in [2004] EWHC 2361 (Ch). The central issue was whether the trustees were reasonably entitled, on the evidence before them, not to support the plan.

1. Directions granted. The trustees were permitted not to accept or support the plan, with a wide discretion as to how that direction should be implemented. The court did not decide that rejecting the plan was the only correct commercial decision.
2. The court’s supervisory function was limited. Applying Edge v Pensions Ombudsman [1998] Ch 512, the question was whether the trustees had taken account of relevant considerations, avoided irrelevant or impermissible considerations, and reached a conclusion which a reasonable body of trustees could reach on the available material.
3. The Let it Run option was reasonably capable of rejection. The evidence indicated that it provided no realistic means of repairing the past-service deficit, risked priority drift between members, left payment unsecured and uncertain until 2012, and appeared to offer no advantage over the immediate alternative treatment.
4. The trustees were entitled to rely on the professional analysis of Grant Thornton concerning controlled realisation values, successor liability and possible non-co-operation. They were not required to revisit every issue already considered by their advisers.
5. The court left open the technical question whether statutory liabilities under sections 56–61 and section 75 of the Pensions Act 1995 could be compromised in advance. It preferred to decide the application on the broader ground that the proposed treatment was unfair and prejudicial on the evidence.
6. Possible future changes to pension legislation and the creation of a Pension Protection Fund were uncertain matters on which the trustees were not required to gamble.

This was a first-instance application for directions. The judgment referred to a related decision of the High Court concerning the administrators’ proposed implementation of the plan: [2004] EWHC 2361 (Ch).