Pentos Forman Ssas · CAS-12702-V0Y8

CAS-12702-V0Y8

Ombudsman’s Determination Applicant Mrs L

Scheme Pentos Forman SSAS (the Scheme)

Respondents The other Trustees of the Pentos Forman SSAS (the other Trustees)

Outcome

Complaint summary

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Background information, including submissions from the parties Mrs L and the other Trustees are aware that I can only investigate complaints relating to events that occurred three years prior to the complaint. Mrs L’s complaint was received on 17 December 2018 and events which occurred more than three years prior to this date will not be considered. Any references to dates prior to December 2015 are included for historical background.

The other Trustees have also raised counter complaints against Mrs L saying that Mrs L’s concerns over her daughter’s business has prevented them from winding up the Scheme and drawing their benefits. All the members are over age 70 and some have serious medical issues.

2 CAS-12702-V0Y8 The other Trustees and Mrs L have agreed that I should look at the complaints from Mrs L and the counter complaints from the other Trustees together in order that a resolution can be found to the ongoing issues.

Mrs L was appointed as a Trustee of the Scheme in April 2008. Rule 8.4 of the Definitive Trust Deed and Rules of the Scheme dated 29 April 2008 says:

“Decisions at Trustee meetings (or sub-committee meetings) must be unanimous. If the Trustees cannot reach a unanimous decision on any matter (excluding decisions relating to the termination or winding up of the Scheme) the matter shall be referred to an expert unanimously appointed by the Trustees whose determination shall be binding on the Trustees. The costs of any such expert shall be an expense of the Scheme for the purposes of clause 15.”

Mrs L’s husband was a member of the Scheme. He died on 17 September 2008 and the Trustees agreed that Mr L’s beneficial interest in the Scheme should be passed to Mrs L.

The background to the dispute was previously set out in the Deputy Pensions Ombudsman’s Determination (80871/1) of July 2011, which is set out below in paragraphs 10 to 32.

The main asset of the Scheme is a property called Upper Skilts Farm (the farm). The farm is made up of an assortment of buildings and land. During 2006 there were discussions between the Trustees about selling the farm, so that members could take their pensions from the Scheme. There was disagreement from the outset. Some Trustees thought the best price could be achieved by selling the farm intact. Others favoured selling the various lots separately.

In 2007 Pentos Forman Limited went into administration. A valuation dated 27 March 2007, by a Fellow of the Royal Institution of Chartered Surveyors (FRICS) said that the farm was worth £1,800,000 if sold as one property, but £1,910,000 if sold in separate lots.

On 18 July 2008, Rowanmoor Pensions Limited (Rowanmoor), the professional trustee, wrote to the member trustees urging them to compromise and reach agreement concerning the sale. In an exchange of emails on 30 July 2008, Mr S (the Scheme Administrator), said that one of the tenants, a riding school run by Mrs L’s daughter, owed the Scheme £84,128.20 in unpaid rent, and Mrs L confirmed that an unspecified amount was outstanding.

A long correspondence then ensued between Mr S, Mrs L’s husband, who was then also a Trustee, and Rowanmoor about the amount owed to the Scheme by the riding school. No agreement was reached.

Mrs L’s husband died on 17 September 2008 and in January 2009 Mrs L said that she wanted to buy the part of the farm occupied by her daughter’s riding school. All but two of the Trustees wanted the farm sold as one property.

3 CAS-12702-V0Y8 During 2008, there was copious correspondence between Mr S and Mrs L’s daughter about outstanding water bills. The matter remained unresolved.

A Trustees’ meeting took place on 29 October 2008. The minutes recorded that all the Member Trustees agreed they wanted to retire and take their benefits from the Scheme. There was a vote on how to sell the farm. Mrs L voted for it to be sold as separate lots. Two of the Member Trustees abstained, and the rest voted for the farm to be sold as one property.

On 19 January 2009 another Trustees meeting apparently took place. It is unclear who attended or what was discussed. Mrs L was excluded, and minutes are not available.

Correspondence about the riding school owned by Mrs L’s daughter then ensued, with Mr S arguing with Mrs L and her daughter over the amounts owed. Nothing was resolved.

On 21 May 2009, Rowanmoor wrote to the Member Trustees, pointing out that the late Mr L’s death benefits needed to be settled within two years of his death in order to avoid a tax charge. Rowanmoor expressed concern about the lack of agreement about selling the farm, and the continuing dispute about money owed by Mrs L’s daughter. Rowanmoor noted that monthly Trustee meetings were taking place without its involvement and requested copies of minutes. (Mrs L was excluded from these meetings and minutes are not available.) In an email dated 30 June 2009 to Mr S, Rowanmoor said that it would not agree to resolutions passed in meetings from which trustees had been excluded.

Arguments continued about the amount of water used by the riding school and the amount of rent it owed to the Scheme.

All the Trustees attended a meeting at the farm on 26 August 2009, together with Mrs L’s solicitor. The minutes state that Rowanmoor advised the other Trustees that the farm needed to be sold by 17 September 2010, to ensure sufficient funds were available to pay the death benefit in respect of Mrs L’s late husband. If that did not happen, the payment would be subject to tax. There was a discussion about whether the farm should be sold intact, or as separate lots. Some Trustees said they had received professional advice that it would be advantageous to sell the farm intact. Mrs L’s solicitor said that the professional advice he had obtained expressed the opposite view. Mrs L said she wanted the riding school and part of the farmhouse transferred to her, as payment of her late husband’s death benefit. The trustees agreed that Mrs L would make a formal offer for their consideration.

The Trustees also discussed the issue of rent due from Mrs L’s daughter’s riding school. It emerged that no valid lease had ever been executed, and it was likely that the rent paid was below the commercial rate. Rowanmoor explained that a commercial level of rent was a HM Revenue and Customs (HMRC) requirement, and any underpayment of rent would be treated by HMRC as an unauthorised payment and taxed accordingly.

4 CAS-12702-V0Y8 The dispute over water bills was also discussed as well as the rent payable by another tenant who occupied an office on part of the site. Mr S again raised that Mrs L’s daughter had not paid recent water bills. Mrs L said the bills had been paid. The Trustees were told that Pentos Forman Limited was now in liquidation, and the liquidator intended to make a claim for £61,000 against the Scheme. The minutes do not say what this amount represented.

Mrs L obtained a valuation of the farm from a FRICS surveyor. The surveyor said that the farm was worth £1,625,000, whether sold as one property or separate lots.

On 13 January 2010, Mrs L’s solicitor sent her formal offer to the other Trustees. It was that the Scheme retained the office building included within the property. The rest of the farm would be transferred to Mrs L. Mrs L would take on the liability for 50% of the Scheme’s mortgage debt, and 50% of the liquidator’s claim.

The other Trustees discussed Mrs L’s offer at a meeting from which she was excluded, despite her request to attend. Rowanmoor did not attend the meeting, and subsequently resigned as a trustee. Mrs L’s offer was rejected on 24 January 2010. The other Trustees said they did not want the Scheme to be left with a tenanted office building with an uncertain rental value, and 50% of the Scheme’s mortgage liability. They felt that Mrs L wanted to “cherry pick” the best parts of the farm. The other Trustees said that they wanted to put the farm on the market as one property, pay off the Scheme’s debts and draw their pensions.

On 23 April 2010, Mrs L’s daughter registered a unilateral notice with the Land Registry against the title of the farm.

On 14 July 2010, the other Trustees met with Mrs L’s financial adviser and proposed to sell the farm in five lots, so that Mrs L had the opportunity to purchase the lots she wanted. In a letter dated 28 July 2010, Mrs L rejected the proposal. Mrs L said that the lots she wanted should be transferred to her when the farm was sold, as there was not much time left before HMRC imposed a tax charge on the death benefits.

In October 2010, the Trustees asked National Westminster Bank (the Bank), to whom the farm was mortgaged, to vary the mortgage terms so as to allow part of the farm to be transferred to Mrs L. The Bank did not give a decision one way or the other. (The trustees made a formal complaint to the Bank about its handling of their application, and its failure to make a decision.)

On 3 December 2010, Counsel advised the other Trustees that it was extremely likely that the riding school operated by Mrs L’s daughter had security of tenure under Section 23(1) of the Landlord and Tenant Act 1954.

The Trustees subsequently agreed informally to sell the farm in lots, in such a way that the rights of the tenants, particularly the riding school, were protected.

In 2010, the other Trustees of the Scheme brought a complaint 80871/1 to The Pensions Ombudsman (TPO) and said that Mrs L was delaying and frustrating the

5 CAS-12702-V0Y8 sale of the pensions property portfolio, the sale of which would enable all trustees to take their benefits. The other Trustees said Mrs L’s refusal to sell the property was penalising them as they were unable to take their benefits.

The complaint from the other Trustees was not upheld by the then Deputy Ombudsman who said:

“I am not considering a dispute between the trustees. I have been asked to determine whether Mrs L improperly prevented the other members of the Scheme from accessing their benefits. But to do this it is necessary for me to consider the actions of all the trustees and not just Mrs L, insofar as they affected the payment of members’ benefits.

…

I have concluded that Mrs L’s actions did not go so far as to constitute maladministration. Certainly, she was determined that the farm should be sold in lots. She obtained professional advice indicating that doing so would not involve a loss to the Scheme. Whilst Mrs L’s stance may have contributed to the delay in payment of members’ benefits, so did other factors, such as the existence of a protected tenant, the apparent reluctance of the Bank to make a decision and the threat of a claim by the liquidator of Pentos Forman Limited. The applicants also contributed to the delay. They held inquorate trustee meetings which could not move the process forward. Trustee decisions needed to be unanimous, so excluding Mrs L from meetings, and not ensuring Rowanmoor’s attendance, was pointless and improper. Given that Mrs L held a dissenting view, it was all the more important to ensure her attendance at trustee meetings.” Mrs L also made a complaint (PO-1209) to TPO in 2013, concerning the other Trustees failure to complete an in-specie transfer and the other Trustees refusal to pay Mrs L’s legal and other professional fees. The former Pensions Ombudsman did not uphold Mrs L’s complaint and said:-

“Following your husband’s death, you took professional advice about taking your benefits from the Scheme. You decided on an in-specie transfer of part of the property which was the Scheme’s principal asset. As you said in your email dated 5 December 2013, you “never ever veered away from this decision.” However, your proposal created difficulties for the other trustees, who preferred selling the property intact. Your daughter’s business occupied part of the property and she was in dispute with the trustees about the terms of her tenancy. There were differences in valuations, planning permission had to be obtained and the mortgagee's consent was required.

You and the trustees both instructed solicitors concerning the in-specie transfer. The trustees’ costs were paid from the Scheme and as a Scheme member you had to pay your own legal fees. Despite the trustees eventually agreeing to the in- specie transfer, it did not proceed. This was principally due to the NatWest Bank’s failure to give its consent as mortgagee of the property. You subsequently reached 6 CAS-12702-V0Y8 agreement with the trustees, by way of a different arrangement that did not involve an in-specie transfer.

You expected the trustees to pay your solicitors’ bill as well as theirs, but they had not consented to this, and were not required to do so. It was reasonable for the trustees’ costs incurred in dealing with your request to be met from the Scheme, and for you to pay your own legal fees in respect of a matter that you had initiated. The in-specie transfer was abandoned, but it does not necessarily follow that the trustees became liable for the fees you incurred.”

The then Ombudsman referred to the Deputy Pensions Ombudsman’s Determination in July 2011 and said:-

“I see no good reason to differ with this finding. Essentially, in addition to external factors, both [Mrs L] and the trustees caused delays.”

Since July 2011 there has been a continuation of the dispute and no agreement has been reached. There was an offer made by developers, in 2015 on the remaining farmland, but this failed to materialise as there were issues regarding the tenant’s lease of the stables. Part of the farm buildings were however sold.

The other Trustees used the sale of the farm buildings to remove the majority of their funds from the Scheme via transfers out, in order that they could receive some of their benefits. A residual benefit may be payable to the other Trustees once a resolution can be found to the dispute. The principal employer Pentos Forman Limited was dissolved in April 2012.

Adjudicator’s Opinion

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1 Code of practice no: 13: ‘Governance and administration of occupational trust-based schemes providing

money purchase benefits’ 10 CAS-12702-V0Y8

2 i.e. in accordance with section 249A of the Pensions Act 2004

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T

The Adjudicator d, his was his the Adjudicator was

The Adjudicator also considered

12 CAS-12702-V0Y8 During the course of this investigation Mrs L has made a proposal to settle the matter via her financial adviser. Mrs L has proposed that she takes on full responsibility for the 55% tax liability if there is a transfer of the property to her. The financial adviser has estimated that the potential tax liability on the other Trustees would be more than any residual share of funds that they may have left in the Scheme. The other Trustees would then be able to resign as trustees and Mrs L would remain as the sole trustee.

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If the Trustees cannot reach a unanimous decision on any matter (excluding decisions relating to the termination or winding up of the Scheme) the matter shall be referred to an expert unanimously appointed by the Trustees whose determination shall be binding on the Trustees. The costs of any such expert shall be an expense of the Scheme for the purposes of clause 15.”

It was therefore the Adjudicator’s opinion that this complaint should be partly upheld against the other Trustees as they did not properly consider Mrs L’s conflict of interest when deciding to award the death benefit to Mrs L and how to realise assets to make any payment and pay any tax charge that arises.

Mrs L did not accept the Adjudicator’s Opinion and the complaint was passed to me to consider. Mrs L provided her further comments which do not change the outcome. I agree with the Adjudicator’s Opinion and note the additional points raised by Mrs L.

Mrs L says that she feels that the majority of her complaint has been disregarded. Her complaint centres around events which took place in 2015 which she was not aware of until July 2018. The process of handling the complaint also changed part way through and she did not get the chance to submit all of the documented evidence to support her complaint. Mrs L has now submitted a number of documents to support her complaint which have been reviewed.

Mrs L also says that she cannot agree to resolving the Scheme’s issues by way of a sale at auction. She has been advised that a sale at auction would not be in the best interests of the Scheme in the current climate.

Mrs L has also outlined an alternative proposal to resolve the matter which she says is the quickest way to bring this to a conclusion and she will be contacting the other Trustees about this. Mrs L says that that if the proposal is accepted by the other Trustees, then she would consider withdrawing her complaint.

Ombudsman’s decision This is an unfortunate case as the history of this complaint does go back a number of years and Mrs L has not been able to access the share of fund that her husband had built up. The issue has been compounded by Mrs L’s insistence on trying to retain the land that her daughter’s business occupies and as no agreement could be reached within two years of her husband’s death any lump sum payment or transfer of part of the property to Mrs L will now be deemed to be an unapproved payment and incur a tax liability.

Mrs L has submitted a number of documents to support her complaint which have been reviewed. These do not change my decision on the complaint or the action to be taken.

14 CAS-12702-V0Y8 I find that this matter does need to be resolved and agree with the Adjudicator’s conclusion that the Trustees did not ask themselves the correct questions or take into account all relevant factors when they previously agreed to award the death benefit to Mrs L. I, therefore, direct that the Trustees should now reconsider their previous decision to award the death benefit to Mrs L taking into account Mrs L’s conflicts of interest and draw up a policy as to how to manage any conflicts of interest that a trustee may have. Following this the Trustees should reconsider the decision to award the death benefit to Mrs L, including a decision on how any death benefit should be paid. The Trustees should also be mindful of Mrs L’s wishes in the matter.

Mrs L has also made an alternative proposal which she says she will bring to the attention of the other Trustees and would be the quickest way to bring this matter to a resolution. I would recommend that the other Trustees give proper consideration to Mrs L’s proposal and if there is no agreement then the Trustees should proceed in line with the directions below.

I partly uphold Mrs L’s complaint and make the following directions.

Directions

Anthony Arter

Pensions Ombudsman 13 June 2022

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