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The Eastman Machine Company Limited Superannuation Scheme - Determination notice

Standard Procedure Determination Notice under section 96(2)(d) of the Pensions Act 2004 and section 7(3)(b) of the Pensions Act 1995

The Eastman Machine Company Limited Superannuation Scheme (the Scheme)

The Pensions Regulator case ref: C154321168

  1. By a request dated 18 September 2020 (the Request) the case team (the Case Team) of The Pensions Regulator (TPR) asked the Determinations Panel (the Panel) of TPR, to consider the issues in a warning notice (the Warning Notice) dated 6 August 2020.

Matters to be Determined

  1. The Warning Notice asked the Panel to make an order under section 7(3)(b) of the Pensions Act 1995 (PA 95) to appoint an independent trustee to the Scheme if it was satisfied that it was reasonable to do so in order to secure that the number of trustees is sufficient for the proper administration of the Scheme pursuant to section 7(3)(b) PA 95.

  2. The Warning Notice also asked that the following consequential orders be made:

    1. the appointed trustee’s fees and expenses be paid out of the resources of the Scheme under section 8(1)(b) PA 95.

    2. an amount equal to the amount (if any) paid out of the resources of the Scheme by virtue of subsection (1)(b) be treated for all purposes as a debt due from the employer to the trustees of the Scheme under section 8(2) PA 95.

    3. to the extent that the appointed trustee’s fees and expenses in relation to the Scheme are not met out of the Scheme’s resources the shortfall be paid to the appointed trustee by the employer of the Scheme under section 8(1)(a) and (c) PA 95.

    4. the property of the Scheme be vested in, or transferred to, the appointed trustee, under section 9 PA 95.

The Decision

  1. The Panel determined that an independent trustee should be appointed, and the requested related orders be made. The terms of the order are recited at the conclusion of this notice (Determination Notice). This Determination Notice gives the Panel’s reasons for that order.

  2. Where the Panel reaches findings of fact, it does so on the balance of probabilities.

Directly Affected Parties

  1. The following are the parties identified by the Case Team, and agreed by the Panel, as being directly affected by the determination to appoint an independent trustee:

    1. Andrew Kyprianou (Mr Kyprianou) and

    2. Colin Werb (Mr Werb) (together the Current Trustees)

    3. Pi Consulting (Trustee Services) Limited (Pi Consulting) (the proposed independent trustee)

The Scheme

  1. The Scheme is a defined benefit occupational pension scheme. It is closed to new members. According to the latest actuarial valuation, the Scheme’s fund size is approximately £1.667 million.

  2. The Current Trustees were the Scheme’s trustees at the time the Warning Notice was referred to the Panel.

  3. According to the Scheme’s trust deed and rules, Mr Kyprianou became a trustee of the Scheme on 17 June 2013 and Mr Werb became a trustee of the Scheme on 18 March 1980.

  4. The Scheme’s principal employer is Eastman Staples Limited (the Employer).

  5. The Current Trustees are both directors of the Employer. Mr Kyprianou is also a shareholder and person with significant control in the Employer.

The Factual Background / Case Team submissions

  1. The request to appoint the proposed independent trustee is contingent upon a related, but separate, request to suspend the Current Trustees from acting as trustees of the Scheme. Although both requests have been treated as separate by the Panel, the factual background relevant to each request is identical.

  2. The Warning Notice raised concerns regarding the proper governance of the Scheme and asked the Panel to suspend the Current Trustees on the ground that TPR is considering prohibiting them from acting as trustees of the Scheme pursuant to section 4(1)(a) PA 95. The Warning Notice alleged that prohibited employer-related investments had been made in breach of the requirements of section 40 PA 95.

  3. The Case Team submitted that if the Current Trustees were to be suspended “there will be no trustees capable of acting since there are no other trustees that are not subject to a suspension order. Accordingly, the ongoing administration of the Scheme will be prejudiced unless the Independent Trustee is appointed”.

  4. The Case Team therefore asked for an independent trustee to be appointed pursuant to section 7(3)(b) PA 95.

  5. For the reasons set out in a determination notice dated 11 December 2020 the Panel suspended the Current Trustees pursuant to section 4(1)(a) PA 95 for a period of 12 months. The effect of the suspension is that the Scheme has no trustees.

Representations and Response

Pi Consulting

  1. On 21 August 2020 Pi Consulting provided brief representations confirming that it was willing and able to be appointed trustee of the Scheme. Pi Consulting further confirmed that it had no conflict of interest with respect to the Scheme or its proposed appointment.

The Current Trustees

  1. Having initially not provided representations in response to the Warning Notice, the Current Trustees subsequently requested an extension to do so from the Panel which was granted. However, no representations were provided by the deadline set by the Panel, nor have been since.

The Law

  1. Section 7(3)(b) PA 95 allows TPR to appoint a trustee where it is satisfied that it is reasonable to do so in order:

    “(b) to secure that the number of trustees is sufficient for the proper administration of the scheme”

  2. The power to appoint a trustee under section 7(3)(b) PA 95 is a non-reserved regulatory function which is exercisable by TPR pursuant to section 93(2)(n) PA 04. Under section 10(8) and paragraph 20(4) and 20(5)(l) of Schedule 1 PA 04, TPR may authorise the Panel to exercise on behalf of TPR, the power to determine whether to appoint a trustee pursuant to section 7(3)(b) PA 95, and if the Panel so determines, the power to exercise that function. TPR has authorised the Panel to exercise the power to appoint an independent trustee pursuant to section 7(3)(b) PA 95 and has asked the Panel to do so.

  3. Section 8 PA 95 provides:

    “(1) An order under section 7 appointing a trustee may provide for any fees and expenses of trustees appointed under the order to be paid— (a) by the employer, (b) out of the resources of the scheme, (c) or partly by the employer and partly out of those resources.

    (2) Such an order may also provide that an amount equal to the amount (if any) paid out of the resources of the scheme by virtue of subsection (1)(b) or (c) is to be treated for all purposes as a debt due from the employer to the trustees of the scheme.

    (3) Subject to subsection (4), a trustee appointed under that section shall, unless he is the independent trustee and section 22 applies in relation to the scheme, have the same powers and duties as the other trustees.

    (4) Such an order may make provision— (a) for restricting the powers or duties of a trustee so appointed, (b) for powers or duties to be exercisable by a trustee so appointed to the exclusion of other trustees.”

  4. Section 9 PA 95 provides:

    “Where the Authority have power under this Part to appoint or remove a trustee or a trustee is removed under section 3A, they may exercise by order the same jurisdiction and powers as are exercisable by the High Court or, in relation to a trust scheme subject to the law of Scotland, the Court of Session for vesting any property in, or transferring any property to, trustees in consequence of the appointment or of the removal.”

Reasons for Decision

  1. In making its decision the Panel had regard to the representations received, and the matters set out in section 100 PA 04.

  2. The Panel was satisfied that it was reasonable to appoint an independent trustee to the Scheme under section 7(3)(b) PA 95. In light of the Panel’s separate decisions to suspend the Current Trustees of the Scheme the Panel considered it reasonable, and indeed necessary, to appoint the proposed independent trustee in order to secure the proper administration of the Scheme, to protect the interests of the members of the Scheme and Scheme assets.

  3. The Warning Notice recommended that Pi Consulting be appointed as the independent trustee if the Panel determined to exercise the power requested. The Panel accepted that recommendation and appointed Pi Consulting.

Consequential Orders

  1. The Panel considered it appropriate that an order be made that the fees of the independent trustee be met by the Scheme and that an amount equal to the fees and expenses paid out of the resources of the Scheme be treated as a debt due from the employer to Pi Consulting.

  2. Finally, it considered whether to order the property of the Scheme to vest in Pi Consulting as trustee of the Scheme under section 9 PA 95 and decided it was appropriate in all the circumstances to make that order.

Conclusion

  1. For the reasons outlined above the Panel determined that an order be made in the following terms:

    “THE PENSIONS REGULATOR HEREBY ORDERS:

    (1) Pi Consulting (Trustee Services) Limited (the Independent Trustee) is hereby appointed as trustee of the Eastman Machine Company Limited Superannuation Scheme (the Scheme) with immediate effect.

    (2) The order at (1) is made because the Pensions Regulator is satisfied that it is reasonable to do so in order to secure that the number of trustees is sufficient for the proper administration of the Scheme pursuant to section 7(3)(b) of the Pensions Act 1995.

    (3) The Independent Trustee’s fees and expenses in respect of the Scheme shall be paid out of the resources of the Scheme pursuant to section 8(1)(b) of the Pensions Act 1995 and an amount equal to the amount paid out of the resources of the Scheme in accordance with and by virtue of section 8(1)(b) is to be treated for all purposes as a debt due from the employer, Eastman Staples Limited, to the trustees of the Scheme, pursuant to section 8(2) of the Pensions Act 1995.

    (4) To the extent that the Independent Trustee’s fees and expenses in relation to the Scheme are not met out of the Scheme’s resources under (3), above, the shortfall is to be paid to the Independent Trustee by the employer, Eastman Staples Limited, pursuant to section 8(1)(a) and (c) of the Pensions Act 1995.

    (5) Pursuant to section 9 of the Pensions Act 1995, it is hereby ordered that all property and assets of the Scheme, heritable, moveable, real and personal, of every description and wherever situated and all rights pertaining to that property be vested in, assigned to and transferred to the Independent Trustee as trustee of the Scheme.

    (6) The appointment of the Independent Trustee may be terminated, or the Independent Trustee replaced, at the expiration of 28 days’ notice from the Pensions Regulator to the Independent Trustee, pursuant to section 7(5)(c) of the Pensions Act 1995 and such power to terminate or replace the appointment shall be exercised by the Pensions Regulator in accordance with its delegation policy.”

  2. Appendix 1 to this Determination Notice contains important information about the rights to refer this decision to the Upper Tribunal.

Signed:

Name: David Latham

Dated: 11 December 2020

Appendix 1

Referral to the Tax and Chancery Chamber of the Upper Tribunal

You have the right to refer the determination to which this Determination Notice relates to the Tax and Chancery Chamber of the Upper Tribunal (the Tribunal).

A reference to the Tribunal is made by way of a written notice signed by you or your representative on your behalf and sent or delivered to the Tribunal with a copy of this Determination Notice. The reference notice must be received by the Tribunal no later than 28 days after this Determination Notice is given to you, unless you obtain an extension from the Tribunal.

The Tribunal’s address is:

Upper Tribunal
(Tax and Chancery Chamber)
Fifth Floor
Rolls Building
Fetter Lane
London
EC4A 1NL

Tel: 020 7612 9730

The detailed procedures for making a reference to the Tribunal are contained in section 103 PA 04 and the Tribunal procedure rules.

You should note that the Tribunal procedure rules provide that at the same time as sending or delivering a reference notice with the Tribunal, you must send a copy of the reference notice to the Pensions Regulator. Any copy reference notice should be sent to:

Determinations Panel Support
The Pensions Regulator
Napier House
Trafalgar Place
Brighton
BN1 4DW.

Tel: 01273 811852
Email: panelsupport@tpr.gov.uk

A copy of the form for making a reference, FTC3 ‘Reference Notice (Financial Services)’, can be found on the GOV.UK website 

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