UK - Blagden directors put off a settlement with pension scheme trustees because they feared it could trigger legal action by shareholders.
Blagden had been perceived as a test case to see whether a company could ‘walk away’ from its pension scheme. But Theodore Goddard – the law firm to the Blagden board – said directors would have made a settlement last year, if shareholder approval had been gained.
In August last year the Blagden trustees asked for a settlement of £5m plus all or part of a £750,000 escrow account drawn up to cover extra buyout.
The board was advised at this point by leading counsel that to make a settlement, where it had no clear legal obligation to meet the full claim, could be prejudicial to shareholders. They, in turn, could have sued the Blagden board.
Theodore Goddard partner Mark Catchpole said: “The quandary facing the Blagden board was that it had responsibilities to its shareholders as well as its employees.”
The subsequent shareholder vote called to approve the payment to the scheme did not gain the 75% threshold needed to pass the motion.
Catchpole said that subsequently, after the company was put into liquidation, it was found that the scheme was actually in minimum funding requirement (MFR) surplus, which then gave the board a clear legal basis on which to make a settlement with its pension scheme.
A settlement was finally reached with the trustees in October of this year when the pension scheme was awarded £5.5m.
But, £697,000 worth of costs were incurred by the liquidator.
Catchpole said: “It is unfortunate that these [costs] were incurred, but that was inevitable in that the shareholders did not vote for the resolution and the directors cannot be blamed for that.”
By David Rowley
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