The recent successful fundraising appeal to save the historic Wedgwood Collection of around 80,000 works of art, ceramics, manuscripts, letters and photographs for the nation received much publicity. The Art Fund, the Heritage Lottery Fund and other trusts raised a total of £13 million, with a further £2.74 million coming from public donations.

The Art Fund, which led the appeal, became involved after the high court ruled, in December 2011, that the collection was not held on a special charitable trust by the Wedgwood Museum and could therefore be sold to cover the Wedgwood Group’s pension fund deficit, following the insolvency of its trading company in 2009. In reaching this decision, the court was required to consider company and trust law as well as the effects of UK pensions and insolvency legislation.

The collection had been owned by Wedgwood’s trading company until the 1960s when, ironically in an attempt to insulate from exposure to the risk of adverse trading conditions, it was given to the newly incorporated Wedgwood Museum Trust Ltd., a charitable company limited by shares and not, unusually for a non-profit organisation of that time, limited by guarantee (which might incidentally have produced a very different outcome).

The basis on which a charitable company holds property, i.e. on trust for a purpose set out in its memorandum and articles or as part of its own general funds can be hard to establish. In this case, the court was satisfied that the collection formed part of the charitable company’s own corporate funds, that is, property which it held absolutely for its own benefit, even if it was restricted to applying it only for the specific charitable purposes in its memorandum. 

Since a separate corporate identity alone would not protect the collection, the argument turned to whether the gift had given rise to a trust, which would separate the legal ownership of the collection from the rest of the charitable company’s assets and put it beyond the creditors’ reach. 

Unfortunately, there was no express declaration of trust in the deed poll recording the gift; worse, it named the charitable company as beneficiary of the gift, not trustee. Nor was the court able to infer that the collection was the subject of a separate charitable trust, since the sole expressed aim of the original gift had been to remove the collection from the trading company’s ownership and this could (and indeed had been) accomplished without the creation of a trust.

What made things still worse was that, although at the time of the gift it was not envisaged that the charitable company would incur any liabilities because the trading company would fund the museum’s running costs, by the time the trading company became insolvent, the employees responsible for the museum had been transferred to the charitable company, causing it to become a ‘participating employer’ in the Wedgwood Group pension plan. Under UK employment and pension legislation this meant that, instead of the charitable company’s liability being limited to the £100,000 deficit for its own (five) employees, it was now also liable for the trading company’s 8,000 employees, bringing the total collective pension deficit to £134.7 million. This is known as the ‘last man standing’ principle, where a solvent employer is left liable for the whole deficit in a multi-employer scheme.

This case highlights the complex interplay of legal issues which can affect collections held by charitable institutions and the importance of achieving clarity over how assets are held and by what/whom, right from the outset. Stephen Deuchar, director of the Art Fund, hopes that the Wedgwood case will serve as a warning and that “any museum with a collection held in trust will…have already checked that it would not be similarly vulnerable in the event of a related company bankruptcy”.