Granada Group Ltd v. The Law Debenture Pension Trust Corporation Plc

The Court of Appeal dismissed Granada's appeal against Andrews J's decision that the arrangements for providing "top up" pensions to former directors were lawful. The court held that the directors did not acquire a "non-cash asset" from Granada for the purposes of section 320 of the Companies Act 1985 because their rights were contingent, personal rights as beneficiaries and not proprietary "interests in or rights over" the charged gilts. The court also held that the trustee was acting in its capacity as trustee of a pension scheme and therefore fell within the statutory exclusion for pension trustees in the definition of "connected person". As a consequence the charge was not a relevant transaction under section 320. The trustee was entitled to be indemnified for its costs under the terms of the trust deed.

This was an appeal from Andrews J's liability judgment ([2015] EWHC 1499 (Ch)) concerning security provided in 2000 by Granada in support of contractual "top up" pension arrangements for senior directors. Granada had established a trust scheme, with a trust deed, rules, special terms and a charge deed under which Granada granted a first fixed equitable charge over certain gilts to the trustee. Granada later contended that the charge was voidable under section 320 of the Companies Act 1985 as an arrangement whereby a director or a person connected with a director acquired a non-cash asset of requisite value without shareholder approval.

Background and parties:

• The appellant was Granada Group Ltd, the employer and grantor of the charge.
• The respondent was The Law Debenture Pension Trust Corporation Plc, the trustee of the pension scheme established by the 2000 documents.

Nature of the claim / relief sought: Granada sought a declaration that the charge was susceptible to challenge under section 320 of the Companies Act 1985 (as it then stood) on the basis that the directors (or persons connected with them) had acquired non-cash assets requiring shareholder approval.

Issues framed by the court:

• Whether the directors acquired a non-cash asset from Granada for the purposes of section 320, in particular whether their beneficiary rights amounted to an "interest in property" or "rights over property" under section 739.
• Whether the trustee was acting in its capacity as trustee of a pension scheme (and thus excluded from the definition of "connected person").

Court's reasoning:

• The court followed the judge in concluding that the directors' rights were contingent personal rights as beneficiaries to compel the trustee to perform the trusts and did not constitute a proprietary interest or a legally enforceable "interest in property" of the character targeted by section 739(1). Section 739(2) extends the definition where the creation or extinction of an estate, interest or right over property is involved, but that extension does not capture the directors' personal contingent rights here.
• The court applied authorities considered by the judge (including Micro Leisure, Gartside, Ultraframe and Coutts) to conclude that not every economic or financial advantage or indirect benefit is an "interest in property" for the purposes of section 320, and that a purposive but legally constrained construction was required.
• The trustee had been expressly appointed by the deed to "manage and administer" the scheme and to hold security required by the rules; accordingly it was acting as trustee of a pension scheme and fell within the statutory exclusion for pension trustees in the connected-person definition.
• Because the directors did not acquire a non-cash asset from the company and the trustee was a pension trustee, section 320 did not render the charge vulnerable. The trustee was entitled to indemnity for costs under the trust deed.

The court therefore dismissed the appeal, leaving other argued points undetermined as unnecessary to decide.

Appeal dismissed. The Court of Appeal agreed with Andrews J that (1) the directors did not acquire a relevant non-cash asset from Granada for the purposes of section 320 of the Companies Act 1985 because their rights were contingent personal beneficiary rights, not proprietary "interests in or rights over" the charged gilts; (2) the trustee was acting in its capacity as trustee of a pension scheme and so fell within the statutory exclusion for pension trustees as "connected persons"; and (3) the trustee was entitled to be indemnified for its costs under the trust deed. These conclusions meant that section 320 did not render the charge voidable.

Appeal to the Court of Appeal from the High Court (Chancery Division) decision of Andrews J ([2015] EWHC 1499 (Ch), [2015] Bus LR 1119). Permission to appeal was given by Arden LJ.