(Greene & Ors-v-Coady &Ors IEHC 38, Charleton J., 4 February 2014).
Element Six Limited (ESL) was the sponsoring employer of the Element Six Contributory Pension Scheme. By 2011 there was a funding deficit of approximately €129m. ESL proposed to discontinue the standing funding arrangements and instead make one final contribution of €37.1m. This offer was made on the basis of it being a final payment prior to the scheme being wound-up and would be withdrawn in the event that the trustees sought to make ESL liable for any higher amount which would result in the liquidation of ESL and a loss of approximately 359 jobs.
After careful consideration of independent expert financial and legal advice the trustees were split 50/50 on whether to accept ESL’s offer or alternatively issue a contribution demand for the full outstanding sum of €129m. The chairman of the trustees exercised his casting vote in favour of accepting ESL’s offer of €37.1m.
Proceedings against Trustees
124 members of the scheme sued the trustees of the scheme for breach of trust arguing that a contribution demand ought to have been issued demanding the entire €129m deficit. Charleton J. concluded that the trustees had done their best and as a matter of fact had acted honestly and in good faith in circumstances where it was evident that their decision was solely made in the interests of the beneficiaries arising from a “fair appraisal of the situation as saw it and after all reasonable enquiries”. The decision by the trustees was held to be “not one with which the Court could take any issue” and the members’ claims were dismissed.
Contractual Nature of Funding Commitment
In its detailed written judgment the Court expressed the view that ESL’s failure to make the standing payments was a breach of contract pursuant to which the capitalised value of the outstanding annual tranches could have been sued for by the trustees.
Following on from this, and of particular interest from an insolvency law perspective, was the further commentary of the Court in relation to the issue of priority to be afforded if the trustees had made a contribution demand for the €129M, or had alternatively sued for the capitalised value of the outstanding annual tranches.
In that regard Charleton J. stated (at paragraph 14.5) that
“The capitalised value of that commitment was one which the trustees could have sued upon and since this was for a sum due in respect of the companies contributions to that scheme, that sum would have had priority in an insolvent liquidation of the Company.
In reality…this is only the Court’s best view in the circumstances where the Court has had a wider breadth of evidence…”.
The Court also expressed the view that clarity on the issue of priority would only arise “if and when a liquidator brought a directions application before the High Court querying whether any demand by trustees constituted a preferential or an unsecured liability of the employer”.
On the issue of preferential payments on a winding-up, Section 285 of the Companies Act 1963 provides that
“In a winding-up there shall be paid in priority to all other debts –
285(2)(i) any payments due by a company pursuant to any scheme or arrangement for the provision of superannuation benefits to or in respect of employees of the company… whether such payments are due in respect of the Company’s contributions to that scheme or under that arrangement or…..”.
Priority is clearly afforded to arrears of pension contributions. Prior to this case however the Court has not considered or determined the issue of whether priority ought to similarly be afforded in the event of a deficit arising in the scheme. Charleton J’s comment (although obiter) is the first judicial indication that a pension deficit issue would probably be afforded priority status by the Court.
Contributed by Delia McMahon