Tax decision reached on Roadchef employee shareholders

Extracted from newspad June 2017

newspad understands that, finally, HMRC has reached a decision about the amount of tax it will levy on the still awaited compensation awards to the 600 original Roadchef employee shareholders and to thousands more who have worked for it since 1998.

However, final distribution of the compensation pot to the aggrieved employee shareholders may be delayed further because the court-appointed trustee apparently still has some court ordered tasks to complete.

HMRC has brushed aside the Centre’s repeated requests for transparency regarding the way in which it is dealing with the tax issues of this complex compensation case, especially CGT liability, claiming that it cannot comment on individual cases.

The compensation battle, even lengthier than the compensation scandal over the Equitable Life victims, stretches back to when motorway service station chain Roadchef was sold in 1998 by former pheasant plucker, Tim Ingram Hill, to Japanese investors.

All qualifying staff at Roadchef were set to benefit after their former md Patrick Gee, who had led the 1983 MBO of the company, decided to give them about 20 percent of its shares in the mid-1980s. However, Gee died while the scheme was being set up and his successor, Ingram Hill, 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 more than 34 percent.

However, seven years on, when Ingram Hill sold Roadchef, the ownership had changed. He then controlled more than 60 percent of the equity and the staff’s share was down to below five percent.

The trustee’s claim, on behalf of the employee beneficiaries, queried the transfer of shares in Roadchef between two trusts, EBT1 and EBT2. The original EBT – called EBT 1 – 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 only. 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 over the years, including as md, chairman and ceo.

Ingram-Hill, who had run Travellers Fare cafes at London’s main-line railway stations, and who became Roadchef’s ceo, reportedly gained more than £85m from his by then personal Roadchef shareholding, though his net gain was substantially reduced by a large tax bill.

Former employees like M, who worked for Roadchef in a motorway service station for nine years, have waited for almost 20 years to learn when they would get compensation for the value of their employee shares, which were removed from them by Ingram-Hill, without their knowledge, before Roadchef was sold.

She is among a determined band of ex Roadchef employee shareholders who are updating newspad on developments in the seemingly interminable fight for justice. Their help is invaluable because court-imposed gagging orders about the nature of the proposed Roadchef settlement have prevented the employee shareholders and the public at large from finding out what has been going on behind the scenes.

Our latest informant told newspad: “This has gone on for far, far too long and needs to be settled now. We’re all so fed up about being kept in the dark – everything is confidential.

I’ve had letters from lawyers on and off for the past 17 years – more and more money is coming out of the compensation pot to pay the lawyers 

“I’ve still got my share certificates but when will I see any value from them?

“I’m told HMRC has finally reached a decision about the tax due from beneficiaries – whenever they get their compensation.

“However, the trustee still has court-ordered tasks to complete before any distribution can take place – what on earth has the trustee been doing over the past three years?

“We the original 600 employee shareholders should be given priority in the distribution – we should be paid our compensation first.”

As newspad revealed several months ago, the criteria governing the proposed division of the agreed compensation sum seem bizarre, to say the least:

  • Qualifying employees (the 600) who were members of the Roadchef Esop up until 1998 are to get 61 percent of the net compensation collectively
  • Non-qualifying original employees (those who either refused to join the Esop, or who were ineligible) are entitled to a further nine percent
  • Lastly, an astonishing 30 percent of the compensation pot is earmarked for more recent employees, thought to number around 3000 – those who were never participants in the Esop!

As yet no-one involved in this unedifying case is prepared to explain on record why more recent Roadchef employees should qualify for any compensation at all. There is a suspicion, however, that the original Esop trust documents, which brought the scheme into being, were not as precise in identifying the beneficiaries as they might have been.

The case, brought by the Esop trustee, ended in the High Court more than three years ago when Mrs Justice Proudman ruled that: “A transfer of shares from one EBT to another was void because the trustees of the transferring EBT did not properly consider the criteria for the exercise of their power and the transfer was made for an improper purpose. Roadchef (Employee Benefits Trustees) Ltd v Hill & Anor [2014] EWHC 109 (Ch) (January 29 2014).

“The judge found that the transfer was part of a preconceived plan to acquire the shares, and that Mr Ingram Hill had exerted improper pressure on the other directors, who simply did what they were told, believing they had no other choice,” the trustees’ lawyers, Capital Law, said in a statement at that time.

However, it took another year before Ingram Hill agreed an out of court settlement, believed to amount to more than £23m. There is no suggestion that Mr Ingram Hill broke any law by transferring employee shares from one trust to another set up by him.

It had taken well over a decade to get Ingram Hill in court because the trustee had no money with which to launch the compensation case on behalf of the Roadchef employee shareholders. A change in the law allowed the Roadchef EBT trustee to bring in Harbour, a litigation funding company, which agreed to fund the case in court. Its fees for doing so have been substantial.

It is believed that Ingram-Hill paid the agreed compensation sum more than 18 months ago. Presumably, that sum is still in an escrow account.

Key questions about the Roadchef Esop disaster rest unanswered:

  • Why in the event of malpractice or negligence by a director and/or a trustee should it be so difficult to protect the interests of employee shareholders, in court if necessary?
  • Why is there no regulatory body specifically tasked with the protection of employee shareholders in ownership disputes, or corporate malpractice?
  • Why should a judge’s ruling banning leading participants – in court hearings over misappropriated shares – from commenting on settlements be allowed to remain in force for years on end?

Years later Nikko off-loaded Roadchef to an Israeli conglomerate Delek Group, which in turn sold it on to European fund Antin Infrastructure Partners, the current owners.

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