Priorities in a pre-arranged funeral business

Overview

This case considers whether the administrators of a collapsed pre-arranged funeral business had the right to pay for funerals for individuals who died in the interim period while they worked on alternate arrangements even though this may have not satisfied the pari passu principle.

Background

Safe Hands Plans Limited ("SHPL") carried on a business selling pre-arranged funeral plans, whereby plan holders would pay a lump sum or a deposit in return for SHPL agreeing to ensure that a funeral director retained within its national network would provide the services required for their funeral, depending on the plan purchased. A plan holder's money would be held in a trust (the “Trust") less an allowance to be taken by SHPL for its administrative costs.

On 23 March 2022, directors appointed Nedim Ailyan and Ben Stanyon as administrators (the “Administrators”). They were faced with the need not only to take control of SHPL's assets but also to take steps to preserve any Trust funds, which by their nature did not belong to SHPL. On the day of their appointment, the Administrators caused SHPL to enter into "the Deed of Delegation" with Sterling Trust Corporation Limited ("Sterling"), the trustee under the original Trust. This was based upon the premise that Sterling was and should remain the trustee but would transfer the Trust funds and assets to SHPL whilst also delegating to SHPL, acting by the Administrators, all of their trust powers, duties and discretions.

The Administrators' investigations revealed a significant shortfall between the assets held under the terms of the Trust and the amounts required to pay the plan holders' respective funerals or to return their money. Current plan holders (of which there are about 46,000) are likely to receive a distribution of only between 11–15p in the pound.

The Administrators sought to find ways to enable the existing policy holders to transfer to other pre-arranged funeral plan providers on terms as beneficial for them as possible. Given that this would take time, the Administrators had to address the issue of what should happen to plan members who died in the meantime. The binary choice was to do nothing and leave them to fend for themselves or to try to provide interim assistance. The Administrators chose to provide interim assistance, with the result that Dignity Funerals Limited ("Dignity") stepped in to assist. Initially, they provided free funerals but that could not continue for a significant period. On or about 30 April 2022 an agreement (the “Agreement") was reached with the Administrators by which Dignity would provide funerals without profit from 1 May 2022 until 31 October 2022. This is what occurred for 416 policy holders. However, Dignity and the Administrators also agreed that the Agreement, and therefore the payment of the cost of the funerals, was conditional upon it being approved or sanctioned by the Court.

The outcome was that only those who died during or shortly before the period specified received the benefit of funerals paid from Trust funds. Everyone else will be left with only the distribution of only between 11–15p in the pound, and that sum will be reduced by about £13.00 for each living plan holder if the Administrators are permitted to pay the cost price agreed with Dignity.

Accordingly, the issues on the hearing were whether there was power under the terms of the Trust or pursuant to the Court’s equitable jurisdiction to use the Trust monies for payment of funerals rather than to distribute them pari passu, and, if so, whether the Court should approve the exercise of that power.

The Court’s Decision

The Court began its decision with an analysis of the terms of the Trust deed and, in particular, clause 4.8, which confers a very wide discretionary power to appoint "the whole or any part" of the capital or income of the Trust fund in favour of one or more of the plan holders. There is a limitation which provides that no exercise of this “power to appoint” shall reduce, prejudice or impair the interests of plan holders in the Trust fund for payment of the sums to which they are entitled. However, the Court found that a shortage of distributable funds does not remove the circumstances in which the exercise of the power of appointment might be needed and ultimately, concluded that the power of appointment can still be exercised when SHPL is insolvent.

The Court then turned to the issue of whether the Court should approve the exercise of the power to appoint. The Court's power to approve or sanction is explained in the well-known case of The Public Trustee and another v Paul Cooper [2001] WTLR 901 in which Hart J. identified four situations in which the court might be asked to adjudicate on trustees' proposed course of action:

a) To decide whether the course was within their powers, which would ultimately be a question of construction.

b) To decide whether the course was a proper exercise of powers thereby granting the court's "blessing for the action on which they were resolved and which was within their powers" which would normally be sought for a particularly momentous decision where "there was real doubt as to the nature of the … powers … [they] had decided how they wanted to exercise".

c) When the trustees persuaded the court to accept their surrender of their powers to the court. This would require good reason and would normally not occur for decisions which could be made by the trustees where they were in a much better position than the court to know what is in the best interests of the beneficiaries.

d) In hostile litigation where the action taken was challenged as being outside or an improper exercise of the trustees' powers.

There was no evidence that the trustees knowingly exercised the power under sub-clause 4.8, but rather that the trustees reached the decision to enter into the conditional Agreement in circumstances of perceived need in their capacity as Administrators. In that capacity they reached that decision as agents for SHPL whilst under a duty to manage SHPL's affairs business and property and to perform their functions in accordance with the objectives of the administration.

This raised the question whether the Administrators could obtain approval or sanction removing the Agreement's condition when they had not consciously exercised their powers. The Court found that they could for the following reasons: (i) no objection had been taken to this course; (ii) the power will nevertheless be exercised by making the payment if the condition is raised; (iii) the Administrators could still present their reasons for their decision to enter into the Agreement and ask the Court to consider whether those reasons should secure the Court's blessing in the context of the existing power; and (iv) there appeared to be no reason why the Administrators should not ratify their decision to enter into the conditional Agreement if need be and plainly making an appointment was their current intent if they have the power to do so.

Conclusion

The Court ultimately found the reasons of the Administrators to be overwhelming especially when the outcome was that each plan holder alive at the date of the insolvency effectively received continuing plan protection for the period of uncertainty that inevitably occurred for an anticipated reduction in their dividend of £13.00 each. Accordingly, the Court approved the Administrators’ actions.

Judge: I.C.C. Judge Jones

Counsel: Marcus Haywood of South Square (instructed by Pinsent Masons LLP) for the Joint Administrators

Charlotte Cooke of South Square (instructed by DLA Piper (UK) LLP) for Dignity Funerals Limited

William Willson of South Square (instructed by Pinsent Masons LLP) for the Plan Holders