Extracted from newspad February 2017
Anger is mounting over the three-year wait by more than 500 Roadchef service station employees for compensation of up to £20K–£30K each in lieu of their employee shares, which were removed from their EBT when control of their company changed hands.
Cardiff-based Capital Law, which helped Roadchef Employee Benefits Trustees Ltd (REBTL) win a High Court judgment in January 2014, is still unable to tell the Roadchef staff when they can expect their compensation payments.
Those close to the case blame HMRC which, according to reports, has yet to reach a decision on the level of tax liability of the compensation beneficiaries.
Centre chairman Malcolm Hurlston CBE, is writing to Treasury Financial Secretary Jane Ellison MP, asking when HMRC will sign off the tax issues and finally allow the long-suffering Roadchef employee shareholders to be paid.
Newspad has been told that collectively the original staff should share 61 percent of the total net compensation sum, while current staff collectively may expect 30 percent and employees who were non-participants in the share scheme may expect to share the remaining nine percent.
In a curious twist, Tim Ingram Hill, the ex Roadchef md at the centre of the employee shares controversy, apparently insisted that he would not advance the compensation cash unless the original trust beneficiaries – the original Roadchef staff – would get the lion’s share of the cash. According to sources close to the case, the court later agreed to the appointment of three trustees to guarantee a three-way split of the compensation along these lines.
Newspad understands that, as frustration mounted, HMRC was sent an appeal to fix a flat income tax rate, say 10–15 percent, which all beneficiaries should pay – in order to speed up the payment process, but there has been no definitive reply. The issue of Capital Gains Tax should not arise because the Roadchef Esop participants had no choice over whether to retain or sell their employee shares, which were taken from them without their knowledge.
The Centre and others are scandalised by the extraordinary delay over processing the relevant compensation payments to these low-paid employee shareholders, so much so that the Centre made Roadchef a key case study – about what can go wrong in all-employee share schemes – at its summer conference in Rome two years ago.
All qualifying staff at Roadchef, which has 21 UK service stations, were set to benefit after its former md Patrick Gee, who had led the 1983 MBO of the firm, decided to give them about 20 percent of its shares in the mid-1980s. However, he died of hepatitis while the scheme was being set up and his successor, Tim Ingram Hill, who had run Travellers Fare cafes at London’s mainline railway stations, unveiled one of the UK’s first ESOPs a year later. Roadchef staff received an initial 12.25 percent of the equity – reserved for them on an equal basis. Gee’s estate later gifted more shares to staff.
By 1991 the Gee family had 23.2 percent of the equity, Ingram Hill had 21.5 percent, top managers had 15 percent and Roadchef staff, either directly or through the ESOP, had 34.8 percent. Seven years on, when Ingram Hill sold Roadchef to Japanese investors, the ownership had changed. He now controlled 62.2 percent and the staff’s share was down to 4.4 percent.
The trustee’s claim queried the 1998 transfer of shares in Roadchef between two trusts, EBT1 and EBT2. The original EBT – called EBT1 – operated an employee share ownership plan for the benefit of all qualifying Roadchef employees, while EBT2 was used to provide share incentives to senior management. The case concerned the circumstances in which the senior management trustees granted options over the shares to Ingram Hill personally, who served in senior posts at the company over the years, including as md, chairman and ceo.
It was not until a change in the law that the Roadchef EBT trustee was allowed to bring in Harbour, a litigation funding company, which agreed to fund the case in court.
REBTL argued that transfer of shares from EBT1 to EBT2 was void and that the transfer made was in breach of trust or breach of fiduciary duty owed to the beneficiaries of EBT1. There were further allegations that Ingram Hill dishonestly assisted in the breach, as he received the shares in the knowledge that they had been transferred in breach.
Mrs Justice Proudman found that, irrespective of any wrongdoing on the part of Ingram Hill, the transfer of shares was void as it was outside the power of the trustees. She held that the claimant could therefore void the transfer of the shares. The High Court found Ingram Hill liable for breach of fiduciary duty too as he had not obtained the informed consent of other directors because he did not tell them he intended to secure the options over the shares.
Yet it was not until many months later that REBTL could agree a confidential settlement amount, which Ingram Hill would pay – believed to be about £27m.
Several Roadchef beneficiaries have contacted newspad to complain about the unexplained delay in payment following our reports on the compensation battle. One such is Audrey Mclear. She said: “I first spoke to your office a few months back regarding non-payment of Roadchef shares, as of yet, after numerous phone calls over the last few days to Capital Law and Roadchef and REBTL Trustees, I feel as if I am getting totally fobbed off with the lack of information. The only statement they are giving is that the taxman is dealing with this, which has been going on now for more than two years.”
Mrs Justice Proudman said that Ingram Hill’s expenses in converting the options into shares and then selling them on to the new purchaser of Roadchef would have to be deducted from the overall settlement. Capital Law’s fees will be heavy, as its lawyers, especially managing partner Chris Nott, have spent many years on the case. In addition, Harbour Litigation Funding is in line for a substantial fee.
“The case is proof of our long-term commitment to cases and demonstrates the value of funding to claimants with a strong case but no funds to pursue it. Without Harbour’s funding this result would never have been achieved,” Harbour said on its website.
The current owners of Roadchef have nothing to do with this share scheme scandal and helped REBTL by providing information about the original employees.
David Pett, founding partner of Centre member Pett Franklin said after the 2014 ruling: “The Trustees of the ESOP had acted in breach of their duties by benefitting the beneficiaries of the second EBT, rather than solely being concerned with the trustees of the trust they were responsible for. The acquisition of the shares by Mr Ingram Hill was not made in good faith. Further, he was in breach of his fiduciary duties as Trustee. To some extent, the case was peculiar to its own facts.
“There are some wider lessons to be drawn, however: Trustees of all trusts, including ESOPs and EBTs, owe extensive duties as Trustees. This includes acting at all times in the interests of the beneficiaries of the trust and avoiding a conflict between their own interests and those of the beneficiaries. This implies a requirement for independent decision making and full disclosure of potential conflicts.”