Practical tips and guidance for Trustees

In view of the ongoing Coronavirus crisis, please see below some practical tips and guidance for trustees of businesses owned by employee ownership trusts (EOT).

Trustee duties

With the expected economic chaos arising from the Coronavirus crisis it is important to recap the duties and responsibilities of trustees of EOTs, particularly those who have not previously acted as a director of a corporate trust. Some key considerations are as follows:

  1. Trustees are under a duty to exercise their votes in the best interests of the beneficiaries of the EOT i.e. the employees as a whole class. Case law shows that this means trustees of the EOT must act in the “best financial interests” of all employees. For example, this may mean a need to reduce or even to suspend the repayment of vendor deferred consideration and / or interest payments on the outstanding amounts for the time being.
  2. To avoid a conflict of interest – the emerging economic uncertainty is likely to create a conflict between vendor and employee interests, and the EOT trustees must act in the interest of the latter group in accordance with the law.
  3. Tough decisions lie ahead for many businesses similar to those experienced during the financial crash of 2008. Trustees must remember that they are bound by a duty of confidentiality and they are not free to disclose to employees or other parties (such as trade unions) information obtained as a director of the EOT corporate trust, which is confidential to the board.
  4. Directors of the EOT corporate trust company have a duty to safeguard the trust’s assets (i.e. shares in the trading company) and to review the financial performance of the business (amongst other duties).

Difficult decisions may lay ahead

The unprecedented situation unfolding at this time means that a director of the EOT corporate trust may find himself in a difficult position when a decision of the trustees of the EOT (e.g. voting on a shareholder resolution which could result in redundancies), which might be in the best interests of the beneficiaries as a class, but would nevertheless result in hardship for himself or his colleagues. It is important to remember that a director has a statutory duty to put the interests of the company ahead of his own.

How can RM2 help?

Where trustees act responsibly, document their decisions, take professional advice and avoid conflicts of interest they are less likely to be exposed to personal liability. Please
email your usual RM2 contact, or if you’d like to discuss any concerns that you may have at this difficult time.