124 members of a wound up contributory defined benefit pension scheme have sued the trustees of the scheme. The members claim that they are owed some €40-€50 million in connection with the scheme wind up, which sum is said to equate to the scheme deficit in respect of these members. The case has been set for hearing in the Commercial Court this February.

Background

In October 2011, Element Six Limited (formerly De Beers Industrial Diamond Division (Ireland) Limited) proposed that the scheme be wound up subject to certain conditions, including an employer payment of €30 million (this included the employer’s €11 million annual contribution for 2011). The trustees accepted this offer by a vote of 4-3, which was carried on the casting vote of the chairman, a company designated trustee. The scheme was wound up in December 2011 with a deficit of €129 million, which increased to €184 million when account was taken of the amount required to fully provide for the scheme’s liabilities.

The members claim the trustees were told that the wind up of the scheme was necessary in order to secure the sustainability of the employer’s Shannon operation. The members also claim that the member trustees felt coerced and bullied by the employer.

It is reported that the trustees had the power under the scheme to issue a demand requiring the employer to fund the deficit on receipt of one month’s notice from the principal employer of its intention to terminate contributions. However, it is alleged the trustees did not exercise that power. It is also claimed that the member trustees had said that the trustees were entitled to demand payment of the total deficit from the employer and that they should make such a demand.

Claim

It is reported that the members have raised a range of issues, including that:

• the Element Six parent company threatened and bullied the trustees in relation to the employer’s obligations to address the scheme deficit of up to €184 million
• the trustees’ failed to exercise a power to require the employer to make a contribution to fund the full deficit, and
• the trustees should have referred the matter to the High Court for directions.

Comment

The case raises a number of very basic but significant issues which have not yet come before the Irish courts. Of particular interest are those relating to the trustees’ obligations to act in the best interests of the members. In seeking to determine whether the trustees acted in the best interests of the members in this case, the court is likely to consider a number of matters including:

• the reasons why a contribution demand was allegedly not served
• whether the trustees acted in the best financial interests of members
• whether the trustees took advice, and
• the manner in which conflicts of interest were handled.

The Element Six claim shows that the buck stops primarily with the trustees. It also illustrates how important it is for trustees to be able to stand over their decisions after the event. However, employers may also get drawn into litigation arising from their actions, particularly if they are seen as the party with the “deep pocket”. 

We will keep you updated on the outcome of this case.

Contributed by Lorna Osborne & Mary Greaney