In our January 2022 Update we reported on the case of Ceredigion Recycling and Furniture Team v Pope in which the High Court held that the directors of a not for profit company had acted in breach of their duties when they transferred ownership of the company's property to SIPPs for their own benefit and leased it back to the company. 

The court has now held that the SIPP providers should transfer the property back to the company.  

The background to the case was that the company's directors had both been on a salary of £25,000 pa, with no pension contributions paid by the company on their behalf.  Following a meeting with a firm of accountants, the directors transferred the property from the company to SIPPS for their own benefit.  The property was then leased back to the company.  The purported justification for this was to make up for previous "underpayment" of wages and pension contributions, though there was no suggestion that there had been any previous agreement that the company would pay the directors more than £25,000 pa.  The directors subsequently resigned, and the company brought a claim against them for breach of duty, seeking return of the property.  The judge held that the directors had acted in breach of their fiduciary duties to the company.  The question of what remedy the judge should order was adjourned to a further hearing.

At the remedies hearing, the judge ordered that the property should be returned to the company.  He also ordered the former directors to repay the rental payments made by the company plus interest.  He held that it was not open to the former directors to argue that any compensation payable should be calculated by reference to what the position might have been had the directors awarded themselves company pension contributions from the outset at levels which would have been lawful under the governing documentation.  Key to this decision was that the judge considered that the case was not just one of making excessive contributions where lesser contributions might have been lawful, but that the directors' actions had amounted to "conversion" (a legal term for taking property without cause or permission). The property transferred to the SIPPs was the company's main asset which had been particularly designed for the company to carry out its trade from a central location.  The former directors' actions meant that instead of owning the freehold of the property, the company became liable to pay an annual rental of £60,000 with a term of 15 years.

Jade Murray

Jade Murray

Partner, Pensions
United Kingdom

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