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In a recent determination, the Pensions Ombudsman has shown that he is willing to find directors of companies personally liable for non-compliance with their legal duties relating to pension schemes.

General protections for directors

It is established that, except in limited circumstances, directors will not be held personally liable for acts or omissions carried out in the ordinary course of business. Exceptions to this rule are set out in statute or exist where a director acts in a manner which assumes a personal responsibility to the claimant.

A recent determination from the Ombudsman sheds some light on the circumstances in which a director’s actions can make him personally responsible in a pension scheme context.

The facts

Mr Forrest was an ex-employee of CCCL and Mr Trace was the company’s sole director. CCCL acted as both the employer and trustee to a pension scheme of which Mr Forrest was a member.

Mr Forrest had previously brought a complaint to the Ombudsman against CCCL (in its capacity as the scheme’s employer) for over £40,000 of unpaid pension contributions. That complaint had been upheld by the Ombudsman in 2011. However, Mr Forrest had been unable to enforce this determination against CCCL despite obtaining a county court judgment. Mr Forrest had been offered £400 per month by Mr Trace on behalf of CCCL to satisfy the determination but this had been rejected by Mr Forrest on the basis that there was no guarantee that the whole payment would be made.

Mr Forrest brought a complaint against Mr Trace in his capacity as a director of the trustee, seeking payment of unpaid contributions.

Mr Trace’s responsibilities

It was agreed that Mr Trace was solely responsible for the day to day tasks of administering the pension scheme and for collecting and transferring contributions both generally and specifically on behalf of Mr Forrest. All discussions relating to the scheme including on points such as contribution increases were with Mr Trace in his capacity as director of the trustee.

In light of these facts, the Ombudsman found that it was not appropriate to find against CCCL in its capacity as trustee because of the 2011 determination and the fact that the payment of contributions into the scheme was the employer’s duty.  However, Mr Trace was found to be personally liable for his actions as a “de facto” administrator and fell within the Ombudsman’s jurisdiction as an administrator under the Pension Schemes Act 1993[1]. The Ombudsman also found that it was maladministration for him not to pass on the contributions (given that he controlled them) to Mr Forrest’s new pension arrangement. The outstanding monies from the 2011 determination and an additional sum of £2,000 for distress and inconvenience caused by his maladministration were determined to be personally recoverable from Mr Trace.

Comment

The particular facts of this case were clearly key to the Ombudsman’s decision to impose personal liability on the director in question but it also provides a useful insight into the types of circumstances in which a director may incur personal liability in a pensions context. Although these situations are likely to affect smaller pension arrangements, the adverse impact on individual directors incurring such responsibility may be very significant indeed. Directors in these situations should consider the roles they perform and seek advice if they are unclear about the limits of their liability.

This post was contributed by Suresh Bhatt. For more information, email blogs@gateleyplc.com.

[1] Section 146(4) and (4A) Pension Schemes Act 1993


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This blog is intended only as a synopsis of certain recent developments. If any matter referred to in this blog is sought to be relied upon, further advice should be obtained.