Decision Date: December 19, 2012
Link: Case Summary Document
Citation: [2011] EWHC 3782 (High Court of Justice, Chancery Division, Purle J, 19 December 2011)

Summary:

This case dealt with matters subsequent to the insolvency of Waterford Wedgwood Limited (the company) in 2009. The insolvency of the company left an unfunded pension liability of £134 million. Under section 75 of the Pension Act 1995 (UK), the last remaining solvent company in a group carries the whole of the pension liability of the group. In this case, the Wedgwood Museum Trust Limited (the museum company) was the last remaining solvent company in the Wedgwood group. The museum company held a valuable collection of Wedgwood artefacts and paintings.

His Honour said that there were two points to be decided. The first was whether the collection was property beneficially owned by the museum company or whether it was held by the museum company as a charitable trust. If the collection was charitable trust property it would not be available for distribution to creditors, but if it was merely beneficial property of the museum company it would be available. The second point for decision concerned availability of the collection in any event via a trustee’s right of indemnity. Since His Honour held that the collection was not a charitable trust, the second point did not need to be considered.

The collection was originally the beneficial property of the company. The museum company had been incorporated in 1962 and took the collection from the company as a gift in 1964. A separate charitable company was set up in order to insulate the collection from any adverse trading situations occurring in the company. The intention was apparently to set up the collection in perpetuity with the property totally inalienable. However, the deed of gift did not reflect those intentions, because it did not set up a separate charitable trust which put the collection outside the ownership of the museum company.

By 2009, when the Wedgwood group of companies became insolvent, the small group of employees managing the museum had been moved to the separate employment of the museum company, but were still participants in the Wedgwood group pension plan. The Pension Act 1995 (UK) (the Act) employs a ‘last man standing’ rule, so that the entire pension plan debt of the Wedgwood group fell to the museum company as the last remaining solvent member of the group.

The collection was valued at between £11.6 million and £18 million. The liability due to the museum’s own employees was about £100,000, but the whole group pension debt was £134 million. Thus, the museum company also became insolvent and was placed into administration. Its assets then became available for distribution to the pension creditors.

Was the collection held as a charitable trust? His Honour could find no evidence that this was the case. His Honour found that the deed of gift of 1964 indicated a trust with the museum company as the beneficiary but no charitable sub-trust. There was nothing to indicate any trust purposes within the general purposes of the charitable company. Thus, the museum company became the beneficial owner of the collection at that point. The collection was not held under a charitable trust.

The nature of the collection holding was not altered by two gifts given to the collection, one from Dr Ralph Vaughan Williams (related by marriage to the Wedgwoods) in 1944, and one from Miss Phoebe Wedgwood in 1967. His Honour found that on the available evidence both gifts were unconditional gifts to the company which passed subsequently to the museum company.

Thus, the collection was held to be available in the insolvency to meet the liabilities owed to creditors of the museum company, which were small and well within the ability of the museum company to meet. However, these liabilities also included the substantial pension deficit liability across the whole Wedgwood group.

The case may be viewed at: http://www.bailii.org/ew/cases/EWHC/Ch/2011/3782.html

Implications of this case

The Attorney-General in this case argued for a charitable trust to be found, but announced on 23 March 2012 that the decision would not be appealed because there was no basis in law for an appeal. Both the Pension Protection Fund and the insolvency firm dealing with the matter have publicly stated that they did not want to see the collection needlessly sold off, but the combination of legislative provisions at work in this situation means that there are few options.

The museum employed only five of the total 7,000 employees of the group, yet it had to bear the entire liability of the pensions owing. This illustrated the difference between a charitable company and a charitable trust in English law. Under insolvency law, the property of a charitable company becomes available to creditors in an insolvency, but not that of a charitable trust (because property of a trust is held for the object of the trust – the beneficiaries or a charitable purpose). If the Wedgwood Museum had been created as a charitable trust the outcome would have been different.