The Deputy Pensions Ombudsman has upheld a complaint brought by Lawrence Graham Trust Corporation, as independent trustee of the Greenup and Thompson Limited Pension Scheme, against the remaining trustees of the scheme. The independent trustee had complained that the trustees had made a loan to the scheme's principal employer in breach of trust and of section 40 of the Pensions Act 1995 (PA 1995). The loan had been outstanding when the scheme's winding-up was triggered on the employer's insolvency in September 2001. The trustees had submitted that they had relied on expert advice in making the loan and that it had been made in members' best interests to keep the employer an ongoing concern. They had also claimed protection under the scheme's exemption clause, and alleged that the loan had in any event been repaid.

The Deputy Ombudsman upheld the complaint, finding the trustees personally liable for breach of trust. As well as being illegal under section 40 of the PA 1995, the loan was a "hazardous" investment and so failed the "prudent man test". The trustees' desire to help the company did not alter that fact and their knowledge of the company's poor financial position made such a defence untenable. The two member-nominated trustees were in the same position as the employer-nominated trustees.

There was no evidence that the trustees had been advised the loan was prudent, nor that they had delegated their investment functions to a fund manager under section 34(4) of the PA 1995. Nor could they rely on the exemption clause in the scheme rules since section 33 of the PA 1995 rendered void any exemption relating to the performance of investment functions. Finding the trustees jointly and severally liable, the Deputy Ombudsman directed them to repay the outstanding loan of £130,074 plus interest.