Granada Group Ltd v The Law Debenture Pension Trust Corporation Plc

Section 320 of the Companies Act 1985 is not engaged merely because a director obtains an economic or financial advantage. An “interest in property” requires a proprietary, legally recognisable and enforceable interest. A beneficiary’s personal right to compel a trustee to administer a pension trust is not a right over the trust assets and is not acquired from the company. A trustee appointed to manage and administer a pension scheme remains within the statutory pension-trustee exception, even where the employer has the primary obligation to pay benefits.

Granada operated unfunded top-up pension arrangements for certain directors. In 2000 it established a pension scheme and granted the respondent trustee security over gilts to secure the contingent benefits. Granada later alleged that the charge was voidable because the directors had acquired a non-cash asset contrary to section 320 of the Companies Act 1985.

After a liability trial, Andrews J held that the arrangements were lawful: [2015] EWHC 1499 (Ch), reported at [2015] Bus LR 1119. The appeal concerned whether the directors acquired a non-cash asset from Granada and whether the trustee was acting as trustee under a pension scheme for the purposes of the connected-person provisions.

Appeal dismissed unanimously.

1. The court construed sections 320 and 739 of the Companies Act 1985 as requiring more than an economic advantage. An “interest in property” means a proprietary interest, or an interest identifiable through legally recognisable and enforceable proprietary concepts. The expression “rights over” property can include some non-proprietary rights, but they must remain legally enforceable rights properly described as rights in or over property. A broad construction covering any financial benefit would make parts of section 739 and the connected-person provisions redundant and would provide insufficient guidance for companies.
2. The directors’ rights were personal rights against the trustee. They could compel proper administration of the trust, but were not rights over the gilts or the charge. The right to enforce the trust was not a separate right from any interest in the underlying trust property, and it was acquired through admission to the scheme rather than from Granada. The directors therefore did not acquire a non-cash asset from the company. The reasoning was consistent with Gartside v IRC [1968] AC 553 and Micro Leisure Ltd v County Properties & Developments Ltd 1999 SC 501.
3. The trustee was appointed to the pension scheme and undertook to manage and administer it. The security was held under the scheme rules for the purpose of meeting benefits if Granada could not or would not pay. The fact that Granada remained primarily liable to pay the benefits did not alter the trustee’s capacity. The trustee was therefore acting as trustee under a pension scheme and fell within section 346(3)(b) of the Companies Act 1985.
4. Other issues canvassed at the hearing were left undecided. Following Housden v Conservators of Wimbledon and Putney Commons [2008] EWCA Civ 200, it was undesirable to determine points unnecessary to the result. The trustee was entitled to an indemnity against its costs, as was common ground.

1. Court of Appeal (Civil Division): Appeal dismissed on 16 December 2016: [2016] EWCA Civ 1289.
2. High Court of Justice, Chancery Division: Andrews J held after a liability trial that the pension arrangements were lawful: [2015] EWHC 1499 (Ch), reported at [2015] Bus LR 1119.