EBT and EOT trustees – step carefully

A recent case in the high court gives some helpful pointers about decision making by trustees of employee benefit trusts (EBTs). This may be of particular interest to employees who have been appointed as trustees of an EBT or an Employee Ownership Trust (EOT) to provide input for the workforce of the company setting up the trust.

The key points to note are that the EBT trustees had at all stages taken great care when considering how they should act, and importantly they were able to provide evidence to the court of all the matters they had taken into account. They had also taken professional advice as appropriate and they had kept the interests of the beneficiaries in mind at all times.

This case involves significant value so the trustees were clearly obliged to follow a careful process, but their actions and decision making processes are a fine example to trustees irrespective of the amounts at stake.

Summary of the case (South Downs Trustees Limited v GH & Ors [2018] EWHC 1064 (Ch))

An EBT, established for many years, held the majority of shares in a company on behalf of current and former employees of the company (beneficiaries). An offer for the company was received which was viewed favourably, and was considered by all parties, overall, to be in the best interests of the beneficiaries.

The trust deed, however, contained a clause which meant the trustees could not sell the shares if it meant that the EBT no longer controlled the company. Further, the trust deed prevented any amendment to this clause.

The court agreed that the EBT trustees could go ahead with the sale, despite the trust deed stating that this was not permitted.

What the EBT trustees did right

It is clear from the case report that the trustees had taken great care when considering how they should act in these circumstances. The court noted in particular that:

• They had sought financial advice on the offer, including whether or not it was appropriate to enter into an exclusivity arrangement with the proposed buyer rather than going to an auction;
• They had sought legal advice on their powers and duties;
• They had noted specific considerations and objectives in relation to the offer, including taking into account the impact on the business and its employees;
• They had investigated the purchaser to ascertain its suitability as a buyer of the company;
• They had sought, and obtained, specific assurances from the buyer as to protection of the workforce if the sale was to go ahead, including a clear declaration from the buyer that no immediate redundancies would be made.
• They had discussed with their advisory committee the importance of confidentiality in relation to the proposed transaction, noting especially the requirement not to cause undue anxiety to the employees in connection with the proposed sale which could have been detrimental both to the business and, consequently, the staff;
• Their decision making was structured and logical and, importantly, was not limited purely to financial consideration;

RM2 acts as a trustee for a variety of EBTs in the context of employee share schemes, including Share Incentive Plans (SIP), Enterprise Management Incentive Plans (EMI) and Employee Ownership Trusts. Should you need any guidance or support on EBTs or trusteeship, please contact us on 0208 949 5522 or email on enquiries@rm2.co.uk.