The Court of Appeal in Granada Group Limited v The Law Debenture Pension Trust Corporation plc [2016] EWCA Civ 1289 provided clarification as to the interpretation of the provisions dealing with the acquisition from or disposal to a company of a non-cash asset by a director in section 320 of the Companies Act 1985 (CA 1985), substantially re-enacted in section 190 of the Companies Act 2006 (CA 2006).


The case concerned pension arrangements for former directors of Granada Group Limited (Granada). Granada is a wholly-owned subsidiary of ITV plc. However, in 2000 it was known as Granada Group plc and was a publicly listed company. The essential question for the Court of Appeal to determine was whether the directors’ membership of a secured unfunded unapproved occupational pension scheme meant that the directors had acquired a non-cash asset of the requisite value for the purposes of section 320. Having adhered to the arrangements for fourteen years Granada now claimed that they were entered into in contravention of section 320 because it did not obtain prior shareholder approval. The arrangements were therefore, Granada argued, voidable at its behest. 

Pension scheme earnings cap 

Granada had an approved occupational pension scheme (Pension Scheme) in place for its employees. The Finance Act 1989 introduced an earnings cap, limiting the total amount of pensionable earnings which could be taken into account in calculating the benefits payable to members joining the Pension Scheme after 1 June 1989. 

In 1992 Granada resolved to continue to provide new senior employees and directors with pensions based upon their full salary, so that they would not be disadvantaged and entered into ‘top up’ arrangements, which operated outside the HMRC approval regime and provided benefits on an unfunded basis. This meant that Granada would have to find the money from its own resources to satisfy these obligations. The disadvantage was that the employer's promise was unsecured. 


In 2000, Granada undertook to provide the executive directors with the benefits under the 1992 arrangements plus a new supplementary pension scheme. This was governed by a Trust Deed and Rules in which The Law Debenture

Pension Trust Corporation plc (Trustee) was appointed trustee. Clause 3.1 gave the Trustee power to require Granada to provide security acceptable to the Trustee for all amounts due or contingently payable under the new scheme. A charge deed was entered into granting the Trustee a first fixed equitable charge (Charge) over gilts which Granada had acquired. 

By the time the case came to the Court of Appeal, the gilts were worth over £40,000,000. Granada’s objective was to recover the gilts on the basis that it would make no difference to the underlying obligation, which it would continue to honour. 

Purpose of section 320

Section 320 (now section 190 CA 2006) requires certain substantial property transactions by a company with directors to be approved in advance by resolution of the shareholders. The rationale is to give a right of scrutiny to a company’s general meeting where a director acquires an asset from the company for a significant amount and where the directors have an actual or potential conflict of interest. Section 320 was one of a number of provisions targeted at ensuring ‘fair dealing’ by directors. Other examples are payments for loss of office (now section 217 CA 2006) and transfer of property to directors in connection with loss of office (now section 218 CA 2006). There are several others. 

The relevant legislation (emphasis added)

Section 320 CA 1985 (now substantially section 190 CA 2006) provided that:

  1.  ‘…a company shall not enter into an arrangement – (a) whereby a director of the company…or a person connected with such a director, acquires or is to acquire one or more non-cash assets of the requisite value from the company…unless the arrangement is first approved by a resolution of the company in general meeting…’
  2. ‘for this purpose a non-cash asset is of the requisite value if at the time the arrangement in question is entered into its value … exceeds £100,000.’

‘connected person’ was defined by section 346 (2) of CA 1985 (see now section 252(2)(c) CA 2006):

‘A person is connected with a director of a company if, but only if, he … is: 

(c) a person acting in his capacity as trustee of any trust the beneficiaries of which include (i) the director, his spouse or civil partner or step-children of his …’

Section 346(3)(b) provided that subsection (2)(c) (above) did not apply ‘to a person acting in his capacity as trustee under an employees’ share scheme or pension scheme.’

A ‘non-cash asset’ was defined by section 739 of CA 1985 (now section 1163 CA 2006) as:

  1.  '…any property or interest in property other than cash; and for this purpose ‘cash’ includes foreign currency.
  2. A reference to the transfer or acquisition of a non-cash asset includes the creation or extinction of an estate or interest in, or right over, any property and also the discharge of any person’s liability, other than a liability for a liquidated sum.’

Contravention of section 320 resulted (under section 322) in the transaction being voidable at the instance of the company (unless certain conditions are satisfied) (see now section 195 CA 2006).

Granada’s Arguments

Granada’s principal argument was that because of the directors' status as beneficiaries under the trust of Granada's covenant to pay the pension benefits and to provide security, they could compel the Trustee to enforce those covenants. This constituted an arrangement for the purpose of section 320 for the acquisition by the directors from Granada of a non-cash asset of the requisite value. The arrangement consisted of (a) the Charge Deed, (b) the requirement in Rule 6 for Granada to provide security acceptable to the Trustee and (c) the security interest over the gilts. The non-cash asset was the interest in the Charge and the right of the directors to compel its enforcement. Granada argued that the charging of the gilts by Granada was intended to confer an advantage on the directors and that was enough to constitute an interest within the definition of non-cash asset in section 739. The word ‘interest’ was broad enough to encompass any economic or financial interest or advantage. 

It was argued in the alternative that the Trustee had acquired a non-cash asset in the form of the Charge; that the Trustee was connected with the directors by virtue of section 346(2)(c); and that the exemption in favour of a trustee of a pension scheme in section 346(3)(b) did not apply, because the Trustee acted merely as a trustee of the security and not as trustee of a pension scheme.

Two key questions 

There were two key questions for the court.

  1. Did the directors acquire a non-cash asset by virtue of the security arrangement for the purpose of section 320? If so, the Charge would be liable to be set aside.
  2. Was the Trustee acting in its capacity as trustee under a pension scheme and therefore within the exemption in section 346(3)(b)? If not, the Trustee would be a ‘connected person’ and therefore the acquisition of the interest in the Charge by the directors was in breach of section 320.

High Court decision

Question 1 – non-cash asset? 

Property or interest within section 739 – Andrews J held that the directors did not acquire any property or interest (whether legal or beneficial) in the gilts themselves as they had nothing more than a right to compel the Trustee to administer the trust, which was a personal right against the Trustee. Any benefits to which they were entitled were cash benefits in the form of pension payments, paid either from Granada’s own resources or from the proceeds of realisation by the Trustee of the gilts secured by the Charge. 

Creation…of an…interest in, or right over, any property – The right of the directors to compel the Trustee to enforce the trust, for example Granada’s obligations to top up the security under Rule 6.6 if there was a shortfall was dependent on a number of contingencies (a fall in value below the required level; Granada failing to make up the difference; the Trustee taking no action; the failure is a breach of trust). Such a right is therefore too nebulous to amount to an interest in or right over property in the sense required by section 320 and section 739(2). Such rights and benefits were not the type of rights that Parliament had in mind as falling within section 320. The beneficiary’s right to compel the Trustee to administer the trust properly was not a right over property and was not capable of being valued. 

Question 1 was therefore determined in favour of the Trustee. 

Question 2 – trustee of a pension scheme? 

The Trustee was acting as the trustee of a pension scheme and therefore was not a ‘connected person’. 

Question 2 was therefore also determined in favour of the Trustee. 

Court of Appeal decision 

Question 1 – non-cash asset? 

Granada’s argument continued to be that ‘interest’ in property was broad enough to encompass any economic or financial interest or advantage and that because the directors could compel the Trustee to enforce Granada’s covenants, this was an acquisition of a non-cash asset by the directors. In addition, Andrews J was wrong to hold that the directors’ rights against the Trustee were not ‘a right over’ the gilts. Exercise of those rights meant that, the directors could compel the Trustee to enforce Granada’s covenants and that was capable of materially affecting Granada’s use and enjoyment of the gilts. Granada also continued to argue alternatively that the exemption in section 346(3)(b) did not apply as the Trustee was no more than a security agent for the directors, whose pensions were to be paid by Granada, and was therefore not acting as trustee under a pension scheme.

Interest in property 

In his judgment, Lewison LJ agreed with the Trustee that Granada had placed too much emphasis on the word ‘interest’, without regard to the context in which it appears. In section 739 (1) ‘interest in property’ means a proprietary interest. Section 739 (2) is needed in order to expand the definition to the creation or extinction of such an interest. If ‘interest in property’ had a meaning as broad as Granada asserted, it was difficult to see why section 739 (2) was necessary. 

The Court did not accept Granada’s argument that unless the phrase ‘interest in property’ was given the wide meaning it suggested, it would be easy to evade the restrictions in section 320. If the directors had been granted the Charge, then they would have acquired an interest in property, namely the Charge. It should make no difference, Granada argued, that a third party (the trust) has been interposed. 

Connected persons 

Lewison LJ said that the purpose of the extension of section 320 to persons ‘connected with’ a director was precisely to cover the situation where a third party was interposed. Parliament had brought indirect rights within the ambit of section 320 by encompassing the acquisition of rights by persons falling within the defined class of ‘connected person’. If Granada’s interpretation was correct, the provisions about connected persons would be redundant. The specific class of persons who fall within the definition of ‘connected person’ must be taken to be the limit of relevant third parties, particularly since the definition of a connected person emphasised that a person is connected with a director “if but only if” that person falls within the class.

Economic or financial advantage too vague 

A further objection to Granada’s interpretation of ‘interest in property’ was that a company needed to know in advance what kind of arrangement or transaction needed to be sanctioned by the members in general meeting. A concept as vague as any economic or financial advantage would be too vague. 

The Court of Appeal held that the rights did not fall within the meaning of a ‘non-cash asset’ on this basis because the rights of the directors under the Trust Deed to compel the Trustee to perform the trust were personal rights only and not an ‘interest in property’.

Rights over property 

Grenada accepted that, if it was wrong about the meaning of ‘interest in property’, the directors had no beneficial proprietary interest in either the gilts or the Charge. Granada’s fall-back position was that the directors had ‘rights over’ the gilts or the Charge in the shape of their ability to compel the Trustee to fulfil its fiduciary obligation to administer the trust. The directors had the right to affect both the enforcement of the Charge as well as Granada’s right to deal with the gilts (which remained its property). It was sufficient for the right to be an indirect right, such as a right to compel someone else to exercise a direct right over property and the fact that the indirect right is exercisable only in limited circumstances made no difference.

Lewison LJ said that ‘rights over’ property meant legally enforceable rights which also suggests that an ‘interest in property’ is one that can be legally enforced. If Granada was correct, then, again, it would make the extension of section 320 to a trustee for a director redundant. In any such case the director would have the right to compel the trustee to perform the trusts which would be a relevant right for the purposes of section 320. The rights in question were personal rights against the Trustee, not rights over the assets of the trust and were therefore not ‘rights over’ property. 

From the company

The right of a beneficiary to compel a trustee to perform the trusts is a right which he or she has by virtue of his or her status as a beneficiary under a trust (which arose from admission as a member of the scheme) and it is not a right which the beneficiary acquired ‘from the company’. Again, they are personal rights against the Trustee. 

For these reasons, the Court of Appeal held that the directors did not acquire a non-cash asset from the company.

Trustee of a pension scheme? 

The Court of Appeal also dismissed Granada’s second argument. It was clear from the Trust Deed that the Trustee was acting in its capacity as trustee under a pension scheme to which the section 346(2)(c) exemption applied. Clause 1 of the Trust Deed, for example, expressly appointed the Trustee as first trustee of the scheme and the Trustee accepted that appointment. The only capacity in which the Trustee could hold the security was as a trustee of the scheme. Granada’s obligation to pay the pensions was an undertaking to the Trustee which the Trustee held on trust. The directors had no direct recourse against Granada if it failed to pay. 

Accordingly, the appeal was dismissed and the decision of the High Court was upheld.


Although this case focuses on the relevant provisions of the Companies Act 1985, it is applicable to the equivalent provisions under the Companies Act 2006 and is judicial interpretation of the relevant statutory provisions. 
If Granada had been right, there would have been significant implications for the pensions industry which was a reason why, as Andrews J put it “the Court must scrutinise the rival arguments with particular care”. 

This article is for general information only and reflects the position at the date of publication. It does not constitute legal advice.