The Deputy Pensions Ombudsman has upheld a complaint brought by the Lawrence Graham Trust Corporation, as independent trustee of the Greenup and Thompson Limited Pension Scheme, against the remaining trustees of the scheme. The independent trustee complained that the trustees had made a loan to the scheme’s principal employer in breach of trust and of section 40 of the Pensions Act 1995 (PA 1995). The loan had not been repaid when the scheme’s winding-up was triggered by the employer’s insolvency in September 2001. The trustees argued that they had sought expert advice (although the Deputy Pensions Ombudsman found no evidence of this) in making the loan and that it had been made in members’ best interests to keep the employer in business.

The Deputy Pensions Ombudsman found the trustees personally liable for breach of trust. As well as being illegal under the PA 1995 provisions restricting employer-related investments, the loan was a “hazardous” investment and therefore failed the “prudent man test”. The Deputy Pensions Ombudsman held that the fact that the trustees knew from July 2000 that the company’s financial health was so poor that the scheme would terminate by October made their defence untenable.

The Deputy Pensions Ombudsman found the trustees (including the member nominated trustees) jointly and severally liable and directed them to repay the outstanding loan of £130,074 plus interest. This case emphasises the need for trustees to take written professional advice in any such circumstances and to ensure accurate records are kept.

View the determination.