The Wedgwood pension scheme and the case of the disappearing museum
For anyone thinking of donating antiques or other valuable gifts to be part of a museum collection there is a moral to follow: beware how you give and to who you give it to! This was never better demonstrated than in the example of the Wedgwood collection and the case of the disappearing museum.
The ramifications of the Wedgwood’s pension scheme continues to trouble the Courts. In January 2018 the Courts issued their latest decision in the rumbling death rattles that saw the insolvency of the Wedgwood Pottery trading companies (part of the Waterford Wedgwood Group) and, key for these purposes, the insolvency of the Wedgwood Museum, which was a charitable company.
It is worth a brief trip down memory lane. The Wedgwood Pottery trading companies became insolvent and went into administration in 2009. Many of these trading companies had, unfortunately for them, also been participating employers in the Wedgwood Pension Scheme (the “Scheme”). The Scheme provided pensions benefits based on a calculation that used members' final salaries and years of pensionable service. This meant that the financial obligations of the participating employers covered both ongoing contributions and, if the Scheme commenced winding-up, the obligation to meet the shortfall between the then assets and the costs of securing those pensions with insurance policies.
At the point the trading companies become insolvent, the Wedgwood Museum (which was also a participating employer in the Scheme) was not insolvent because its assets (including the value of the extensive pottery collection) exceeded its individual liabilities (including its employer debt of approximately £100,000).
Unfortunately for the museum, the Scheme was what is called a “last man standing” arrangement, meaning that any deficit left over once the insolvent employers had paid their share of the debts that followed their insolvency, became the sole responsibility of the Museum (as, unfortunately for it, the last employer standing). As the trading companies were insolvent, this meant that they could not pay their full shares of the debts due. The Museum’s liability therefore increased from £100,000 to an eye watering £134million (approx). Unsurprisingly, this meant that the Museum also entered administration because it could not meet the £134million deficit due.
At this point, and with insolvency practitioners involved, the question unsurprisingly became, what assets did the Museum actually have that were available to meet this deficit and did that include the historical collection (including the pottery)? Press reports at the time valued the historical collection at around £15million.
The key point, subsequently decided by the UK Courts, was whether the collection was the Museum's beneficial property and so available to be sold to meet insolvency costs (including the pension debt), or whether it was held on special charitable trusts and as such unavailable for distribution upon insolvency.
Unfortunately, the Courts decided that no special charitable trust had been declared over the collection so it was available to be sold to meet the Museum’s debts.
The problem came from the fact that when the settlors gave the collection as a gift (at various points in time), the deeds recording the terms of that gift did not provide for it to be held by the Museum on separate (or special) charitable trusts, but instead said the Museum was to be the beneficial owner. As the judge succinctly put it:
"This is a sad conclusion for those who are concerned to preserve a collection which is, as everyone recognises, part of our cultural heritage and of immense importance, but it is the combined result of the pension protection and insolvency legislation. It is at least a legitimate view that the tragedy that befalls working people when their pensions are affected by insolvency is at least as great as the tragedy that has befallen, or may now befall, the collection in this case."
While a subsequent fundraising campaign raised £15.75million in order to purchase the Wedgwood collection for the nation the entire saga does raise wider pension questions that potential donors of valuable arts and antiques should consider before they make a gift.
Should my gift be given under a permanent endowment/ through a charitable trust or as a straight gift?
A permanent endowment is where an asset is passed to a charity, but with a restriction that permits the charity to use the income the asset produces but not its capital value. A special trust is property held and administered by or on behalf of a charity, but through a separate trust for a special purpose of that charity, so that the asset itself, never belongs to the charity.
In its guidance the Charity Commission states that a charitable company cannot hold permanent endowment as part of its charitable assets but that the charity company can act as a trustee of a separate permanently endowed charity.
Therefore, if there are concerns that the museum/receiving entity that will benefit from the gift may be at potential risk of insolvency, whether through its exposure to pension liabilities or other financial risk, any potential donor should consider which option to take, before giving the gift, in order to ring-fence the donation from the general assets of the receiving entity.
What are the risks of pension liabilities impacting on my gift?
If the receiving entity participates in a defined benefit pension arrangement, and the asset will belong to the entity without restriction or trust (so is not held under a separate endowment or charitable trust), then that gift could be at risk in insolvency.
Even if the receiving entity has only a small pension liability, as the Wedgwood Museum found out, if the pension scheme is a last man standing arrangement, and the receiving employer is unfortunate enough to still be standing when the music stops, the potential financial exposure could be material.
Even if the receiving entity does not have a defined benefit pension scheme itself, any donor needs to check whether there are any such pension schemes in the wider receiving entity UK group. This is because the UK Pensions Regulator has various powers under which it can pierce the corporate vail and make companies that are connected or associated with each other liable for each other’s UK pension liabilities. If this is the case, then again, a donor would be wise to consider the structure under which it makes its donation.
The V&A was gifted the collection from the Art Fund, which is still located in the Wedgwood Museum as part of the award winning World of Wedgwood Experience Centre in Barlaston, Stoke on Trent.
This article was written by Michael Jones. For more information please get in touch via email@example.com or +44 (0)20 7203 8917.
Nick Hurley interviewed by GB News on the legal ramifications of employers insisting employees have the COVID-19 vaccine
Nick considers the potential dangers of employers setting a precedent by adopting a 'No Jab, No Job' policy.
Record success for Charles Russell Speechlys’ Private Wealth practice in Chambers HNW 2021 directory
We are delighted to have once again been recognised as a leader in our field in the Chambers High Net Worth 2021 Guide.
Michael Powner writes for People Management and explains how employers can carry out an equal pay audit
How do employers carry out an equal pay audit?
COVID-19 Vaccination – can an employer make it compulsory for employees?
We review what legal issues to take into account when considering to make vaccination compulsory as an employer.
Charles Russell Speechlys advises on the sale of No.1 Lounges Ltd to SwissportALD
SwissportALD will run nine No.1 Lounge properties at the UK’s London Heathrow, London Gatwick, and Birmingham airports.
Changes to Right to Work Checks from 1 July 2021
EEA citizens and their family members are required to evidence immigration status in the UK, in the same way as other foreign nationals.
Changes to Right to Rent Checks from 1 July 2021
Following the UK’s departure from the EU, the right to rent checks grace period of six months will end on 30 June.
Michael Powner and Laurence Whymark write for The Caterer on the implications of the new tipping laws on the hospitality industry
Operators will soon have to pass on tips to staff without deductions.
Top 7 Data Protection Tips for Employers
Here are our top 7 data protection tips for employers.
The EAT has held that “gender critical” beliefs are protected under the Equality Act 2010
The EAT has held that “gender critical” beliefs come within the definition of philosophical belief under the Equality Act
Nick Hurley quoted by the Daily Mirror on the legal implications of implementing a 'No Jab, No Job' policy
"'No jab, no job' may seem clear and concise, but whether an employer can make it mandatory is far from straightforward.
Charles Russell Speechlys advises Avicenna Group on duo of pharmacy group acquisitions
The acquisition takes Avicenna to a total of 135 pharmacy branches.
Briony Richards writes for Employment Law Journal on when an employer can dismiss for expression of faith-based views
Briony Richards examines two recent cases in which a Christian claimed he was discriminated against due to his beliefs.
Anna Sowerby writes for The Fashion Law on the new collaborative approach being taken by luxury brands and online platforms to fight fakes
Online platforms are now under pressure to be more proactive in their approach to tackling the ever-escalating issue of counterfeit goods.
Rachel Warren writes for People Management on how businesses should deal with sexual misconduct allegations
Rachel Warren outlines the pitfalls for unwary employers dealing with workplace sexual harassment claims.
Lucy Heath quoted by People Management on the value of HR expertise to an organisation
A qualified HR person, whether in-house or external, will have the right qualification and know how to handle issues.
Sarah Morley quoted by Estates Gazette on the implications of the Court of Appeal’s decision in TFS Stores v Designer Retail Outlet
Perfume retailer The Fragrance Shop lost a legal dispute with the Designer Retail Outlet and other large shopping centre owners.
Linking ESG and Executive Pay
How does a business go about embedding a focus on strong ESG performance into the structures and culture of its organisation?
Building Back Better: Future Gazing
What’s next for the hospitality industry post-pandemic?
Building Back Better: Re-examining your proposition
Why hospitality businesses should re-examine their proposition now