Granada Group Ltd v The Law Debenture Pension Trust Corporation Plc

Section 320 of the Companies Act 1985 does not apply merely because pension-scheme beneficiaries have personal rights to require a trustee to administer the trust properly. Such rights are not rights over trust property and are too contingent and nebulous to be valued as a non-cash asset. A trustee acquiring security as an integral part of a scheme providing retirement or death benefits acts in the capacity of trustee of a pension scheme. The statutory exception for pension-scheme trustees is comprehensive and is not restricted because the scheme is unfunded, supplements pre-existing benefits, or principally benefits directors. Accordingly, security granted for a secured unfunded pension scheme was not voidable for want of shareholder approval.

Granada sought to recover gilts worth more than £40 million charged to secure supplementary retirement and death benefits for former executive directors. It alleged that the 2000 arrangements contravened section 320 of the Companies Act 1985 because the directors acquired non-cash assets exceeding the statutory threshold, or because the trustee was a connected person.

The Trustee contended that the directors acquired no proprietary interest or right over the gilts, and that it acquired the charge as trustee of a pension scheme within the exception in section 346(3)(b). The trial concerned liability only, together with the Trustee’s counterclaim for contractual indemnity.

1. Issue A — directors’ rights. The directors acquired no non-cash asset for section 320 purposes. Their rights were personal rights against the Trustee to require proper administration of the trust. They were not rights over the gilts or the charge within section 739(2) of the Companies Act 1985. A charge directly affects the owner’s freedom to deal with property; a beneficiary’s right to compel a trustee to exercise rights as chargee does not.
2. The arrangement was not a bare trust. The benefits were contingent and included spouses, civil partners and dependants. Any possible right to compel enforcement depended on several contingencies, including default, the Trustee’s failure to act, and breach of duty. It was therefore too nebulous to amount to a relevant right over property and was incapable of reliable valuation above £100,000.
3. Issue B — the Trustee’s capacity. The statutory exception in section 346(3)(b) was not to be construed restrictively. The Trust Deed and Rules, Charge Deed and Special Terms formed one composite pension scheme. The security was integral to ensuring payment of retirement and death benefits. In acquiring and holding it, the Trustee acted as trustee of the pension scheme, not as a security agent.
4. The Scheme was therefore outside section 320. Granada’s claim was dismissed. The Trustee’s contractual indemnity counterclaim succeeded. The Trustee was entitled to costs on the indemnity basis and to contractual interest on those costs, compounded quarterly.