Pensions regulator wins £2m case over unpaid contributions

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The Upper Tribunal has upheld a decision by The Pensions Regulator to force an employer to pay almost £2m into a pension scheme after it failed to make pension payments

The case concerned the Meghraj Group, a 100-year-old investment and banking advisory and fiduciary services firm with offices in Asia, Africa and Europe.

Meghraj Financial Services Limited (MFSL) was the sponsoring employer of the pension scheme but entered into creditors’ voluntary liquidation (CVL) in October 2014, leaving the scheme with a deficit of around £5.85m.

From 31 December 2001, MFSL was the sole legal owner of a company called Meghraj Properties Limited (MPL), which in turn owned shares in a joint venture company in India, known as Indian JV. Rohin Shah, who is the nephew of Anant Shah, was a director of MPL from March 1995.

Between 2007 and 2011, MPL received large amounts of money from the disposal of its shares in the Indian joint venture, as well as payments from dividends on those shares. The majority of these sums were paid to MFSL and accounted for in MPL’s accounts as paid out by way of dividends.

On 18 May 2012, MFSL signed an agreement with MPL to pay the final tranche of the proceeds of MPL’s sale of the Indian JV to Paramount Properties Limited (PPL), a Jersey company which was the nominee vehicle of Ronin Shah.

In January 2014, MPL received a final payment of £3,668,108 which was paid directly by MPL at the direction of Rohin Shah.

The Pensions Regulator then began investigating a series of payments made from MFSL to its parent company, Meghraj Property Limited. It then issued a determination notice confirming a contribution notice of £3,688,108 against Shah and Rohin Shah, his nephew, for the unpaid pension contributions.

The regulator argued that these payments, which followed MFSL’s disposal of its shares in a joint venture company with most of the sums paid out as dividends, should have been used to fund the pension scheme.

It added that the failure to do so was ‘materially detrimental’ to the scheme’s members.

Shah contended that no contribution notice should have been issued against him as MFSL had ‘no entitlement’ to the proceeds of the sale of the remaining shares in the Indian JV as a consequence of the 2004 Agreement. He denied that the ‘material detriment’ test in s38A Pensions Act 2004 had been satisfied.

Section 38 PA 2004 sets out the powers of the regulator to issue a contribution notice on the basis that ‘the regulator is of the opinion that the person was a party to an act or a deliberate failure to act’ specifically when the person was at any time in the relevant period ‘the employer in relation to the scheme, or a person connected with, or an associate of, the employer’.

Shah argued that he had no means of paying any contribution notice issued against him, stating that the enforcement of such a notice would be likely to result in ‘his bankruptcy’ with little or no gain to the financial position of the scheme.

The Upper Tribunal agreed with the regulator that it was reasonable that Shah paid a contribution notice, which included 50% of the sum that should have been paid into the scheme plus an uplift to take account of the passage of time since the initial transactions.

As a result, the amount of liability under the contribution notice would be increased by £31,349, from £1,844,054 to £1,875,403.

Judge Timothy Herrington said: ‘We can deal with Mr Anant Shah’s causation argument very briefly. He pleaded that even if there was no binding contractual agreement entered into in 2004, he believed that there was such an agreement and, accordingly, would have permitted the proceeds of the 2014 sale to be paid to PPL in any event.

‘In light of his acceptance in cross-examination that the 2004 agreement was not intended to be legally binding, this argument must fail. It is clearly the case that as a matter of causation, the entering into the 2012 agreement and the making of the 2014 payment resulted in material detriment to the scheme.

‘Accordingly, the issue of a contribution notice to Mr Anant Shah for £1,875,403 would in all the circumstances be reasonable and would be within the shortfall sum. The reference is dismissed. Our decision is unanimous.’

Erica Carroll, TPR’s director of enforcement, said: ‘We welcome this clear and helpful judgment, which supports our long-held views about how the legislation should be interpreted. It provides clarity on how contribution sums should be calculated by confirming they are not limited by the loss to the scheme.

‘This ends the speculation caused by past cases over whether these sums should be purely compensatory. The amount of this CN together with the previous settlement, will provide a substantial sum to help meet the scheme’s deficit. We will always consider taking action where we see savers’ money has been put at risk.’

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