Pensions Casebook - Audax Management Limited and Mr Edward Martin Kelly

This case summary forms part of the Burges Salmon Pensions Regulatory Casebook. We provide analysis including practical considerations and high level commentary

29 September 2021

Commentary / Practical Considerations

The Audax case highlights the need to ensure that there are thorough and robust trustee processes. The dialogue with TPR is also important and key factor here was that TPR held that it was misled by Mr Kelly in relation to the appointment of a new administrator.

-  In this case TPR appointed Dalriada as independent trustee.

-  TPR acted due to the previous trustee’s lack of knowledge and understanding of the role and duties of a trustee that led to non-compliance with numerous statutory and common law trust requirements.

-  The previous trustee:

  • failed to engage with the Regulator on master trust authorisation,
  • delayed and ultimately failed to appoint an administrator,
  • failed to handle member requests for transfers, valuations or to access their funds,
  • and did not show effective oversight of the Scheme’s investments.

No proper advice appears to have been taken.

TPR also noted a lack of diversification in respect of scheme assets.

Case summary

(i) Facts and background:

Key facts that arose from correspondence between TPR, Mr Kelly and Audax Management Limited (“Audax) were:

  • The scheme failed to comply with key elements of the master trust regime;
  • The scheme’s Chair statement also did not comply;
  • The trustees had failed to appoint a new administrator;
  • Investments lacked

(ii) Summary of decision

  • The Panel appointed an independent trustee due to the previous trustee’s lack of knowledge and understanding of the role and duties of a trustee that led to non-compliance with numerous statutory and common law trust requirements.
  • Mr Kelly and Audax Management Limited (“Audax”)were both prohibited from acting as a trustee of a trust scheme

(iii) Key factors in the decision

The Trustee’s lack of knowledge and understanding gave rise to:

  • transfer requests going unaddressed
  • four member complaints regarding transfer requests and lump sum payments,
  • a lack of clarity about the status and security of their investments.

(iv) Key legal principles

  • Trustees should have appropriate knowledge and understanding including in respect of their scheme rules
  • Trustees should ensure compline with key statutory requirements and obligations to members

Analysis

Audax was sole corporate trustee of the Audax Pension Trust Scheme (the “Scheme”) and Mr Edward Kelly was a director of Audax. The Scheme was established in 2014, and throughout its life had Audax as Trustee.

The Regulator’s Case Team were of the view that Audax and Mr Kelly lacked the necessary competence and capability to be trustee to the Scheme and the Panel agreed.

There were a series of failures from 2017 to 2020, often breaching statutory requirements.

Amongst other things, HMRC notified Audax that the Scheme’s registration would be withdrawn on 27 January 2017, on the basis that the appointed administrator was 'not fit and proper'.

Audax appealed this de-registration and at the time of the Determination this was not finally decided. Following this Audax failed to appoint another scheme administrator and Mr Kelly misled the Case Team as to his efforts to do so.

In February 2017, the Case Team contacted Audax regarding the de-registration and the forthcoming master trusts regime, followed by issuing a statutory notice requesting further information.

After a second request some of the information was provided, including a non-compliant Chair’s Statement. Though the Case Team explained how the Scheme fulfilled the definition of a master trust, Mr Kelly responded that this was 'different from advice we have previously received' and failed to further engage on the issue. As a result, Audax failed to comply with other elements of the master trust regime, pointing to 'material' lack of competence.

The responses to the statutory request raised concerns on the Trustee’s knowledge and understanding, and in late 2018 Mr Kelly approached the Case Team repeatedly about appointing Dalriada to the Scheme.

Mr Kelly also informed the Case Team that he had 'inherited unknown issues' when appointed to the Scheme and he saw no option but for Dalriada to step in and wind up the Scheme, requesting the Regulator’s assistance in resolving the issues. Mr Kelly seemed to be under the impression he needed clearance from the Regulator or HMRC in order to engage Dalriada, again demonstrating a lack of understanding of his duties.

Additionally, the Scheme should have been wound-up following the dissolution of the Principal Employer in February 2018, in accordance with the Scheme’s Trust Deed and Rules. Audax’s failed to do so demonstrated further lack of knowledge about the Scheme rules.

In May 2019 Mr Kelly stated he had been unable to appoint a new administrator as no administrator was willing (which was not an accurate representation of events), it also became clear that Mr Kelly was not aware of the Trustee’s duties in the absence of an administrator, to handle day-to-day scheme operations. Member transfer requests were not dealt with, breaching transfer requirements.

The Case Team also considered that the Scheme investments were not properly diversified, and that Audax had failed to provide proper oversight following the exit of their investment advisor and investment manager in 2018, as well as not considering potential conflicts with the adviser while they were in place. It appeared at times Mr Kelly was not even clear of where the Scheme’s investments were.

The Case Team also found that Mr Kelly’s communications with both the Regulator and members lacked integrity, in particular as he misled members on the reason that there was no administrator (blaming HMRC and the Regulator), and the Panel agreed that some statements did show lack of integrity. 

Key words

Trustee knowledge and understanding/skill; scheme administration; transfer requests; scheme investment; competence and capability; integrity; appointment of independent trustee; section 7 Pensions Act 1995

Date

24 June 2020 (Revised on 5 August 2020) 

PA04 procedure & reference

Standard procedure (s 96(2)(d)), C59291233/3

 

Key contact

Clive Pugh

Clive Pugh Partner

  • Pensions Regulatory
  • Pensions Services
  • Pensions Legal Advice 

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