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The Yateley Industries for the Disabled Ltd Pension and Assurance Scheme - Final notice

Compulsory review pursuant to Section 99(4) of the Pensions Act 2004 (the Act)

The Pensions Regulator case ref: C23099076

Introduction

  1. The Determinations Panel (the Panel) of the Pensions Regulator (“the Regulator”) has reviewed its determination made following a Special Procedure hearing on 29 August 2013 when an independent trustee, Dalriada Trustees Ltd, was appointed with exclusive powers and a vesting order made.

Directly affected parties

  1. The following parties are directly affected by this determination:

    i. VerdePlanet Limited (VerdePlanet) (the original trustee of the Scheme);

    ii. Yateley Industries for the Disabled Limited (the sponsoring employer);

    iii. Dalriada Trustees Limited (the independent trustee).

Background

  1. This Final Notice follows the compulsory review of the decision taken by the Panel at a special procedure hearing on 29 August 2013 to appoint an independent trustee, Dalriada Trustees Ltd (Dalriada), with exclusive powers.

  2. The special procedure hearing followed concerns being raised by the Regulator regarding the trustee to the Scheme. In particular, the Panel’s attention was drawn to the following:-

    i. the trustee, VerdePlanet, did not appear to have the necessary knowledge and understanding of the principles relating to the investment of scheme assets;

    ii. an independent trustee was needed to prevent the investment of Scheme assets into high risk or illiquid investments;

    iii. one of the directors of VerdePlanet had a personal interest in some of the investments and this conflict of interest created a real risk that Scheme assets had not been, nor would be, applied in the sole or best interest of members.

  3. The Panel considered it was reasonable to appoint Dalriada with exclusive powers in accordance with the Pensions Act 1995 (the 1995 Act) in order to:-

    i. secure that the trustees as a whole have, or exercise, the necessary knowledge and skill for the proper administration of the Scheme pursuant to section 7(3)(a);

    ii. secure the proper use or application of the assets of the Scheme pursuant to section 7(3)(c);

    iii. otherwise protect the interests of the generality of the members of the Scheme pursuant to section 7(3)(d).

  4. The facts that were particularly relevant to the Panel’s determination were the decisions taken by VerdePlanet to invest the Scheme’s assets in Phoenix Helicopter Academy Ltd (PHAL) and Plane Sailing Sales Ltd (Plane Sailing) including the decision to purchase a property in France for use as a warehouse by Plane Sailing.

Compulsory review determination

  1. Having completed the compulsory review, the Panel determined to confirm the determination referred to in paragraph 1 above, and to confirm the Order made on 29 August 2013 under sections 7 - 9 of the 1995 Act.

  2. In reaching its decision, the Panel considered written representations received from VerdePlanet, Dalriada Trustees Ltd and from the Regulator’s case team.

  3. In the course of the compulsory review, the Panel considered representations in relation to certain allegations made before it at the special procedure hearing. Specifically, these allegations related to:-

    i. a possible loan made to VerdePlanet;

    ii. a payment made to Yateley during the year to 31 March 2012;

    iii. a change to the valuation cycle which had the ultimate effect that no contributions to the Scheme were required at that time.

    The Panel noted Yateley’s explanations on these issues. The Panel concluded that there was not sufficient material at the compulsory review to reach a conclusive finding in relation to each of these issues. It was not, however, necessary to reach a decision on these allegations in order for it to uphold its determination to appoint Dalriada Trustees Ltd.

Reasons for decision

  1. The Panel gave careful consideration to the issues raised and had regard to the objectives of the Regulator as set out in Section 5 of the Act and to the matters listed in Section 100.

  2. The Panel noted that in its representations, VerdePlanet welcomed the appointment of Dalriada as independent trustee, albeit that it did not accept the grounds for the appointment. VerdePlanet did, however, confirm that its directors had not previously acted, nor had experience, as trustees. VerdePlanet stated that it was its intention to appoint an independent trustee itself “as soon as was considered practicable”.

  3. The Panel determined to uphold its previous determination for the following reasons.

Trustee’s knowledge and understanding

  1. VerdePlanet does not appear to have the required knowledge and understanding of the principles relating to the investment of Scheme assets, including:-

    (i) the requirements of section 36(3) of the 1995 Act to “obtain and consider proper advice on the question whether the investment is satisfactory” ;

    (ii) to “have regard to the need for diversification of investments, in so far as appropriate to the circumstances of the scheme” (regulation 7 of the 2005 Regulations) and

    (iii) common law requirements to invest in the best interests of members and to select appropriate investments.

Investment decisions

  1. In particular, the Panel was concerned that VerdePlanet had failed properly to diversify the Scheme’s portfolio or invest in the best interests of members by:-

    i. investing £278,000, approximately 19%, of the Scheme assets in PHAL, a single company in a single industry with very limited assets.

    The Panel noted the explanations of the directors of VerdePlanet regarding this investment. Whilst VerdePlanet may have genuinely believed that the investment was a beneficial one to the Scheme, this was a high risk investment. The Panel did not accept the estimated value of the company put forward by VerdePlanet.

    In any event, in the Panel’s view, it would not have been clear to VerdePlanet at the time of the investment that PHAL would be successful. In the Panel’s view, this investment gave rise to a serious concern as to VerdePlanet’s understanding of suitable investments for a pension scheme. In particular, the Panel was concerned that VerdePlanet had decided to invest a significant proportion of the Scheme assets, in a single company only recently incorporated in 2010, with no established, public track record.

    The Panel found that there was no evidence that Mr McLarry had benefitted personally in any way as a result of the investment in PHAL.
    .
    ii. Investing 8% of the Scheme’s assets in a single property in France.

    The Panel noted VerdePlanet’s arguments that “investment in property is seen as a well proven and normal investment route”. It did not, however, accept that the decision to invest in this French property was made in the best interests of members, particularly where VerdePlanet itself stated that “The Scheme originally made an ‘investment’ in PSSL in order to allow the Company to grow through the purchase of further antique stock and the purchase of a base in the South of France to be used as a warehouse.” It is assumed that here VerdePlanet were meaning Plane Sailing when referring to “the Company”.

    VerdePlanet themselves have stated that “with hindsight and better knowledge, this matter of the building could have been handled differently.”

    iii. Investing in Plane Sailing, a single company dealing in antiques.

    The Panel noted the comments made by VerdePlanet that Plane Sailing is not a dormant company, although it also noted that the Plane Sailing company accounts for the year ended 31 March 2012 state that, at that time, it was a dormant company. Nevertheless the Panel remained concerned that, for the reasons set out at (ii) above, the motivation for this investment was not to act in the members’ best interests but to assist Plane Sailing itself, which, in the Panel’s view, was not an appropriate consideration for VerdePlanet. The Panel had similar concerns to those set out at (i) above regarding the suitability of an investment of this type for a pension scheme, or the ability of VerdePlanet properly to secure the Scheme funds by carrying out an audit of the antique stock, the value of which is questionable. 

    Whilst VerdePlanet stated “We cannot imagine a more diverse situation than this”, the Panel did not accept that the diversification relied on by VerdePlanet in investing such a proportion of the pension fund’s assets in a helicopter operations company and an antiques business with assets in France, was sufficient or appropriate diversification.
    Failure to obtain independent investment advice
    The Panel noted VerdePlanet’s acceptance that it had not obtained independent investment advice on the investments to PHAL and Plane Sailing. Given the requirements of section 36(3) of the Pensions Act 1995, namely that “the trustees must obtain and consider proper advice on the question of whether the investment is satisfactory….” this gives rise to serious concerns as to VerdePlanet’s knowledge and understanding of its role as trustee.

Conflicts of interest

  1. The Panel remained of the view that certain of the investment decisions made by VerdePlanet appeared to involve a conflict, or potential conflict, of interest. Of particular concern to the Panel was the decision by VerdePlanet to invest Scheme assets in Plane Sailing, a company belonging to the wife of Mr McLarry, one of the two directors of VerdePlanet. Mr McLarry himself is a former director of Plane Sailing. This conflict was declared and the Panel noted VerdePlanet’s statement that Mr McLarry was specifically excluded from “any input or persuasion” in discussions regarding the finances between the Scheme and Plane Sailing. However, in the Panel’s view, it was not enough for one of the directors of VerdePlanet to absent himself from discussions / decisions on this investment and for his colleague to take any decisions. Given the small number of trustees, the close connection with his fellow trustee, the absence of any independent advice and the fact that minutes of the meetings were themselves taken by Mrs McLarry, the director of Plane Sailing, the Panel’s concerns regarding managing the conflict of interest in relation to this investment remained. Comments made by VerdePlanet itself, as to the reason behind the Plane Sailing investment, also suggested that VerdePlanet did not fully appreciate conflict of interest issues. 

Other issues

  1. The Panel noted VerdePlanet’s concerns that it had approached the Regulator for assistance on more than one occasion. This did not appear to be disputed by the Regulator although in response, the Regulator stated that this demonstrated a misunderstanding of the role of the Regulator in seeking advice that should have been obtained from the trustee’s advisers. Whilst the Panel appreciated VerdePlanet’s concerns, it did not, in the Panel’s view, lessen the trustee’s own obligations to seek appropriate professional advice. 

  2. Appendix 1 to this Final Notice contains important information about the Directly Affected Parties’ rights of appeal against this decision.

 

Chairman : Andrew Long

Date : 8 November 2013

Appendix 1

Referral to the Tax and Chancery Chamber of the Upper Tribunal

You have the right to refer the matter to which this Final Notice relates to the Tax and Chancery Chamber of the Upper Tribunal (the Tribunal). Under Section 103 of the Act you have 28 days from the date this Final Notice is sent to you to refer the matter to the Tribunal or such other period as specified in the Tribunal rules or as the Tribunal may allow. A reference to the Tribunal is made by way of a written notice signed by you and filed with a copy of this Final Notice.

The Tribunal’s address is:

45 Bedford Square,
London
WC1B 3DN

(tel 020 7612 9700).

The detailed procedures for making a reference to the Tribunal are contained in Section 103 of the Act and the Tribunal Rules.

You should note that the Tribunal rules provide that at the same time as filing 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

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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