One has to admire the determination of the Roadchef employees who battled for 17 years to establish that shares held for their benefit in an employee benefit trust (EBT) were improperly transferred to the former chairman of the company, Timothy Ingram Hill, who subsequently made almost £27 million by selling them. The employees won when the case was heard in the High Court last year and the parties have reportedly agreed an out-of-court settlement before the Court of Appeal was due to hear the case.
- From a corporate governance and risk perspective, one of the disturbing aspects of the case is the evidence that the trustees of the EBT spent only 10-15 minutes considering the Board’s recommendation to transfer the shares out of the EBT and grant Mr Ingram Hill an option over them. As a result, they found themselves exposed to substantial liability.
- Being a trustee of a remuneration arrangement, such as an EBT or a pension scheme, that is closely connected with the affairs of a company, is a responsible legal position in which an individual must manage important duties and risks:
- Trustees have a fiduciary duty to the beneficiaries of the trust and should not “rubber stamp” recommendations or decisions made by the board of an associated company;
- Trustees should specifically consider the powers granted to them under the trust – a disposal of trust property will often be outside their powers because it will be of no benefit to the beneficiaries of the trust;
- Trustees who are also directors must be clear about the capacity in which they are making a decision and recognise that a potential conflict arises from the fact that, as trustees, they owe duties to the EBT members and, as directors, their duties are owed to the company and its shareholders; and
- Trustees should appoint professional advisers who are separate from the company’s advisers.
In the Roadchef case, the trustees who were also directors of the company could not rely on the statutory protections from liability under the Companies Acts or the Trustee Act because they were found to have behaved unreasonably.
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