T. Burton For Direction Of Assets Re Ben Line Steamers For Directions As To The Distribution Of Its Surplus Assets
| Jurisdiction | Scotland |
| Judge | Lord Drummond Young |
| Neutral Citation | [2010] CSOH 174 |
| Year | 2010 |
| Published date | 24 December 2010 |
| Docket Number | P318/10 |
| Court | Court of Session |
| Date | 24 December 2010 |
| OUTER HOUSE, COURT OF SESSION [2010] CSOH 174 | |
| P318/10 | OPINION OF LORD DRUMMOND YOUNG in the Note by THOMAS M. BURTON, liquidator of THE BEN LINE STEAMERS LIMITED Noter; for Directions as to the distribution of its surplus assets ________________ |
Act: Sellar, QC; Dundas & Wilson CS LLP
Alt (Trustee of the Merchant Navy Officers' Pension Fund): S Wolffe, QC; Brodies LLP
24 December 2010
The Company
[1] The Ben Line Steamers Ltd ("the Company") was incorporated in 1919. It and its subsidiaries engaged in cargo, container, bulk and tanker shipping and latterly operated offshore oil-drilling rigs. Until 1987 it had several hundred employees. A substantial number of these were Merchant Navy officers who were members of the Merchant Navy Officers' Pension Fund ("MNOPF"). In May 1987 the company underwent substantial restructuring; it sold its container shipping business and disposed of its remaining shipping interests. As a result its workforce was reduced. A further restructuring took place in January 1995 which involved the issue of cumulative redeemable preference shares to a syndicate of lending banks, led by the Royal Bank of Scotland PLC. Those shares were issued in consideration of the cancellation by the banks of the Company's indebtedness to them in a debt/equity swap. In January 1995 the Company dismissed its remaining employees, and after that its only activities involved the winding down of its business operations. Eventually, on 17 March 2000, the Company resolved that it should be wound up voluntarily in terms of section 84 of the Insolvency Act 1986. The date of the winding up is the date of that resolution. The liquidation is a creditors' voluntary winding up in terms of section 84 of the Insolvency Act 1986; that follows from section 129 of the Act as applied by Rule 4.16 of the Insolvency (Scotland) Rules 1986. The Noter is now the sole liquidator of the Company.
[2] In the course of the winding up certain questions have arisen between the Noter and MNOPF Trustees Ltd ("the Trustee"), who are the trustee of the MNOPF. These relate to the distribution of the surplus assets remain in the Noter's hands after the payment of debts and statutory interest to various minor creditors of the Company. To have the questions resolved, the Noter has presented a note to the Court under section 112 of the Insolvency Act 1986 in which he seeks directions.
[3] The Noter has realized the assets of the Company, which amounted to £9,427,436. He has adjudicated on all claims made in the winding up except for the claim by the Trustee. Those claims amount to £1,892.43, and the Noter has the consent of the Trustee to pay them in full, together with statutory interest. It is estimated that the expenses of the winding up will amount to approximately £90,000. On that basis, the surplus assets of the company would amount to approximately £9,355,436. If the present claim is left out of account, all of that sum would be payable to the banks which hold the Company's preference shares. The Trustee, however, has submitted a claim in the winding up in the sum of £20,198,880, exclusive of statutory interest. The purpose of the present note is to determine whether that claim is admissible in the winding up, the amount of the claim and the extent to which the Trustee is entitled to be paid before any surplus assets are paid to the banks which hold the preference shares.
The Merchant Navy Officers' Pension Fund
[4] The MNOPF is an occupational pension scheme designed to provide pensions for officers of the British Merchant Navy. It was established by a trust deed and rules dated 29 October 1937. The MNOPF is an industry-wide scheme, which enables officers who satisfy the conditions of membership of the scheme to enjoy continuity in their pension provision even if they work for more than one participating employer during the course of their working lives. The scheme has never been subdivided into separate sections for each employer. In 1978 it was divided into an Old Section, which provided benefits in respect of service accrued up to 5 April 1978, and a New Section, which provided benefits in respect of service accrued on and after 6 April 1978. The Company became a participating employer in the MNOPF in 1978. At that time the scheme was governed by a trust deed and rules dated 2 January 1978. The trust deed and rules were replaced with effect from 1 December 1992 and again with effect from 27 January 1995 and yet again with effect from 25 June 1999.
[5] Employees of the Company were members of the MNOPF until January 1995, when all of the Company's employees were dismissed and all outstanding amounts relating to their employment were paid over to the MNOPF. An actuarial valuation of the members of the New Section of the MNOPF was prepared as at 31 March 1999. This disclosed a deficiency in the assets of the New Section of £55 million in respect of its past service liabilities assessed on an ongoing basis; that assumed that the New Section remained open to the receipt of contributions and the continued accrual of benefits. A further actuarial valuation as at 31 March 2000 revealed a deficit of £8 million. Rule 29.2 of the 1999 Rules provided that if as a result of an actuarial report there appeared to be a deficiency in the assets of the MNOPF, the Trustee was required to consider what action was to be taken to restore the MNOPF to solvency, whether by way of increasing contributions, decreasing benefits, amendments to the trust deed and rules or winding up the scheme. The Trustee consulted participating employers who were continuing to make contributions to the MNOPF, and decided that it would not be appropriate to fund the deficit only through increased contributions from those employers. The Trustee decided that the fairest way of dealing with the deficit was to divide liability for it among all employers who had participated in the MNOPF at any time after 5 April 1978.
[6] The Trustee formed the view that, faced with the prospect of funding the deficit, participating employers with active members of the MNOPF in their employment would attempt to leave the MNOPF by transferring those employees to other, non-participating, companies. The Trustee therefore executed a deed of amendment on 8 June 2000, nearly three months after the date of the Company's liquidation ("the 2000 Amendment"). This replaced the definition of "participating employer" contained in Rule 3 of the 1999 Rules. The new definition redefined "participating employer" to mean "such companies or firms as may have become Participating Employers in accordance with [the current provisions] or which have previously become Participating Employers under other documentation which then governed the scheme. No company or firm shall cease to be a Participating Employer either as a result of ceasing to employ Active Members on or after 8 June 2000 or otherwise as a result of ceasing to employ persons in the categories described in [the current provisions] on or after that date or otherwise...". The same amendment also introduced a new rule 5.2A which provided that each participating employer (whether or not employed active members) would be required to make such further contributions, if any, to the MNOPF from time to time as might be decided by the Trustee in order to reduce or eliminate any deficit or anticipated deficit.
[7] On 7 November 2003 the Trustee initiated proceedings in the Chancery Division of the High Court in England and Wales for a determination regarding which type of employer fell within the revised definition of "participating employer". The principal issue in dispute was whether employers who had ceased to employ active members of the MNOPF before 8 June 2000 were subject to the 2000 amendment and could be made liable to fund the deficit in the New Section of the MNOPF. On 22 March 2005 Patten J. held that all employers who had ever participated in the MNOPF, including the Company, were within the class of "participating employers" for the purposes of rule 5.2A. As a result of this decision, the Trustee determined that the deficit would be apportioned among all employers who had participated in the New Section. The judgment of Patten J. did not, however, deal with the implications of the 2000 amendment for any participating employer who was in liquidation before the date of adoption of the rule.
[8] A further actuarial valuation of the New Section of the MNOPF was produced on 25 March 2004. It indicated that as at 31 March 2003 a deficit of £194 million existed, calculated on an ongoing basis. In August 2005 the Trustee, relying on the judgment of Patten J., demanded payment by the Company of contributions amounting to £4,039,781. That sum was stated to represent the Company's share of the deficit in the New Section of the MNOPF, calculating in accordance with rule 5.2A of the 1999 Rules. On 16 June 2006 the Trustee executed a further deed of amendment which introduced new wording into rule 5.2A ("the 2006 Amendment"). The new wording had the effect of permitting the Trustee to calculate a participating employer's share of the deficit on an estimated buy-out basis where, inter alia, an insolvency event occurs or has occurred at any time in relation to a participating employer. An "estimated buy-out basis" means that the employer's share is calculated by reference to the estimated cost of securing the benefits due to its former employees by the purchase of annuities. "Insolvency event" is defined to include a creditors' voluntary winding up.
[9] It is a matter of agreement between the parties that the combined effect of relatively low interest rates and increased longevity has been that the cost of purchasing annuities to secure scheme benefits is usually far in excess of the cost of funding such benefits on an ongoing basis. In August 2006 the Trustee, relying on the 2006 amendment, informed the Company that its share of the...
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