conflicts of interest in cases of
overlap of the boards of pension scheme trustees and the scheme’s sponsoring
company
by
Roderick Ramage, solicitor, www.law-office.co.uk
this
has not been published but if any reader has a view on the subject his or her comments
will be very welcome and might lead t an article for
publication
DISCLAIMER
This article is not advice
to any person and may not be taken as a definitive statement of the law in
general or in any particular case. The author does not accept any
responsibility for anything that any person does or does not do as a result of
reading it.
1
Conflicts of interest does not imply
actual conflict between the parties, but there can be no doubt that when the
directors of the employer and even more so its shareholders are trustees, they
have real legal conflicts of interest: they have duties to both parties whose
interest can become opposed with differences that must be resolved. I do not share TPR’s stringent view of
conflicts, although they are technically correct. In my opinion, a rigid regime to avoid
conflicts can be counter-productive and uneconomic and impose unreasonable
restrictions on the conduct of the both the employer’s and the scheme’s
activities.
2
In my opinion there is often no need
for trustees to abstain from voting or even discussion of issues in which they
have a conflict: I believe that this can
be an artificial device which imposes unreasonable burdens on the other
trustees or trustees, especially if the non-director trustees are MNTs. I suggest that one way to deal with the
conflicts without appointing independent trustees is as follows.
3
There are two main elements of
conflict. One is of confidentiality and
the other is of issue. At a trustee you
have a duty to keep confidential information about the scheme and another to
disclose to the scheme (ie co-trustees) any information you acquire that
affects the scheme. Directors have
similar duties to the employer.
Therefore if directors of an employer have knowledge about the employer
that they must keep confidential, yet as trustees they must disclose it to
their co-trustees, and visa versa. There can be no information barrier (or so
called “Chinese (or ethical) wall”) in these circumstances. Therefore my advice is that the employer and
trustees, whilst maintaining confidentiality as against the outside world, must
operate between themselves on an “open book” basis, so that information,
including advice, available to either directors or trustees is available
without restrictions to the others, with the exception mentioned below.
4
In anticipation however of occasions
on which either the employer or the trustees need an exception to the open book
practice, the scheme’s trust deeds or rules should provide as follows or to a
similar effect.
confidential information
1
If a Trustee acquires Confidential Information
and complies with rule 32 and with the provisions of any conflicts policy adopted
by the Trustees from time to time, he is not under a duty to disclose the Confidential
Information to the other Trustees.
2
Where a Trustee is in possession of
Confidential Information which he believes would be of relevance to the other
Trustees in performing their functions as Trustees, the Trustee shall:
(a)
declare that fact to the other
Trustees; and
(b)
take no part in any discussions or decisions
of the Trustees where he believes that the Confidential Information would or might
be material.
3
The Principal Employer shall procure
that a Trustee, who is a director or employee of an Employer and is under a
duty to disclose Confidential Information to the Employer, is not under a duty
to disclose the Confidential Information to the Employer if he:
(a)
declares that fact to the Employer;
and
(b)
takes no part in any discussions or decisions
of the Employer where he believes that the Confidential Information would or might
be material.
5
Conflicts of issue are more
obvious: as trustees you want the
employer to pay £x but the employer claims that it can afford only a smaller
amount. Subject again the exception
below, this conflict can be resolved substantially by reliance on independent
advice coupled with relevant information that can be objectively verified and
justified.
6
By these means it should be possible
to concentrate on the common ground between the parties, which in some case
removes any real conflict, or show the extent of differences that may be
resolved by good sense and reasonable judgement.
7
The exception is where it becomes
apparent that there are not just differences but the differences are too great
to be bridged, so that some dispute resolution, eg litigation, may be
necessary. It is at this stage that
confidentiality must be preserved. At
least one director on the employer’s side and at least one trustee, neither of
whom is conflicted, should be designated as the person to whom the professional
adviser can give advice which must be confidential, eg that legal action may
have to be taken. In case on either
board there is no one who is not conflicted and it is not possible or practical
to appoint an independent member, the designated persons should be expressly
released from their duty of disclosure to the other body. At that stage would more drastic action to
deal with the conflict may be necessary, eg resignation (probably as trustees)
or the appointment of an independent trustee or both.
draft 13/09/05,
paragraph 4 added 15 August 2015
© Roderick Ramage
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