A lawyer has warned that trustees may face expensive consequences for failing to keep accurate member data on scheme wind-up despite legislations protecting trustees.
Trustees may come across members making legitimate claims on assets after a buyout or wind-up and should place a high premium on record-keeping, said Rebecca McKay, senior associate at SNR Denton.
A recent legal judgment said the section 27 of the Trustee Act 1925 that prohibits unidentified beneficiaries from making claims on assets after a wind up, provided certain notifications were published by trustees, may not be sufficient for trustees who had forgotten about the existence of 32 members.
The judgment had observed that section 27 couldn’t be applied as the trustees had prior notification about the ‘missing members’ who had transferred into the scheme a few years ago.
It was immaterial that they were forgotten during the wind up, the judge had observed, adding the members had valid claims on their share of the assets.
The trustees had argued s27 gave them protection, but the judge ruled against them. The trustees had to depend on insurance cover to settle the bill.
There was always skepticism about the efficacy of s27 and this case reinforced those fears, observed Ms McKay.
“The point for trustees to remember is s27 does not really give you that much protection. Effectively, trustees are always deemed to be on notice when it comes to their members because they ought to know who has come in and what has happened to the scheme,” said Ms McKay.
Trustees may have to face heavy financial consequences if they failed to keep proper records, she added.
The case also underlined the importance of trustee insurance, not only for protection against valid claims by missing members, but also for faulty record keeping.