Business Irish

Thursday 18 January 2018

Aer Lingus warned to give trustees of workers’ pensions notice of €500m dividend

Tim Healy

THE High Court has ruled the trustees of Aer Lingus workers' pensions funds must be given prior notice of the proposed €500m distribution from Aer Lingus' capital reserves so as to pay dividends to shareholders.

It is then open to the trustees to bring a claim against the company given the €930m deficit in the funds and to seek injunctions restraining distribution of the €500m if that brings the reserves below the amount of the claim, Mr Justice Roderick Murphy directed.

He said Aer Lingus was not entitled to an unconditional order concerning the proposed €500m distribution but the trustees’ application for any distribution to be conditional on retaining sufficient reserves to address a claim also "poses a problem".

While he considered it "not possible at this point" to make an order precluding "the effect" of the reduction, he would impose a condition that no distribution of the reserves would be made without notice to the trustees, the judge said. That gave them a right to make claim but there was no such claim as of now, he added.

He would also directed no distribution should be made without notice such as would reduce the reserves below the sums of the deficit. Those orders would enable the trustees to formulate a claim and seek such orders as they see fit, he said.

Following that ruling, Paul Sreenan SC, for Aer Lingus plc, and Brian O'Moore SC, for the trustees, asked that the matter he adjourned to Friday to allow them take instructions as to the precise wording of the orders and other matters.

The judge agreed to that adjournment.

He was giving his decision on an application by Aer Lingus plc for an unconditional order permitting the proposed €500m reduction in its capital reserves from €859m to €359m.

The judge had last July refused to sanction that reduction unless Aer Lingus provided for potential legal claims resulting from the pensions' deficit. He said the shortfalls in the general and pilots' pension schemes appeared to constitute a contingent future claim against Aer Lingus and the proposed reduction in the capital reserves was "substantially below" the level of the funds' shortfall.

The matter was then adjourned several sides to see if an agreement could be reached on the issue but, in the absence of such agreement, Aer Lingus last week repeated its application.

The trustees had previously expressed concerns, if the company got approval for the share capital reduction before a final agreement was reached on pensions issues, such approval was likely to impact significantly on talks between the sides.

Aer Lingus insisted it needed finality on the matter while the trustees urged further talks or, if not, orders allowing Aer Lingus reduce its share capital on condition it maintained non distributable reserves at a level that would deal with the pensions deficit.

Aer Lingus Group plc, as holding company of the Aer Lingus companies, had claimed it has no "legal" obligation to address the pension funds deficits.

The Retired Aviation Staff Association, representing some 4,7000 serving and retired Aer Lingus staff, had opposed the application because of a €748m deficit in their pension scheme. The pilots union, IALPA, also opposed the application due to the €182m deficit in the pilots pension scheme.

The court was told Aer Lingus Ltd, as participating employer in the two pension schemes, pays a fixed contribution to those schemes and had paid those contributions to date. It was alleged it was the responsibility of the trustees to address the deficit, whether by reducing benefits or other means.

While Aer Lingus Ltd might choose to make a voluntary contribution towards reducing the deficit, it had no legal obligation to do so, it was argued.

Today, Mr Justice Murphy said he believed the unconditional order sought by Aer Lingus was not appropriate as it did not reflect what was in his judgment last July and he was unhappy with that.

He also had to consider no claim has been made against the parent company and there is a distinction between the parent company and Aer Lingus Ltd.

However, while it was clear claims concerning the pension funds related to Aer Lingus Ltd, it was also clear there was a contingent liability on behalf of the trustees against the parent company, he said.

While he considered the draft order proposed by the trustees largely reflected his judgment, the draft also assumed claims had been made against the parent company, the judge said. He added he had considered submissions by solicitor Brendan Frawley, who is among the pensioners affected, and provisions of the Companies Act relating to the duties of directors to companies.

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