In South Downs Trustees Limited v GH, IJ, KL [2018] EWHC 1064 (Ch) the High Court approved a decision by the trustees of an Employee Benefit Trust (EBT) to sell their controlling stake in the employer company despite the trust deed prohibiting it; the trustees took great care in making their decision which was in the interests of the beneficiaries.
Section 57(1) Trustee Act 1925 allows the court to grant trustees the power to enter into transactions for the benefit of the trust where the trust deed does not give them the necessary power.
South Downs Trustees were the trustees for an Employee benefit trust which held 73% of the employing company shares.
- The trust deed prohibited the trustees from transferring or disposing of the shares if it resulted in the trustees losing control of the company and it prevented any amendment to the deed in this respect.
- The trustees entered into negotiations to sell the entire holding to a third party purchaser. It was agreed by all parties that this was in the best interests of the beneficiaries.
The High Court agreed that the trustees could proceed with the sale, despite the prohibitions in the trust deed.
The trustees in this case did everything right, they took legal and financial advice, considered all parties, investigated the purchasers suitability and obtained specific assurances regarding the future of the workforce. Despite this they found themselves seeking the courts approval for the sale. The case highlights the importance of a carefully worded trust deed and the lengths to which trustees must go when making decisions about trust property. Whilst the case was about an EBT, it could equally apply to Employee Ownership trusts (EOT) and family settlements.
Links:
Employee Ownership Trusts: an exit route for owner managers
External link:
South Downs Trustees Limited v GH, IJ KL [2018] EWHC 1064 (Ch)
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