Beneficiaries Prevent Sale of Family Trust Shares

The power of trust beneficiaries to direct in certain circumstances the actions of the trustees of the trust under which they benefit was clearly shown in a recent High Court case in which beneficiaries blocked the sale of trust shares.

The trust in question was created in 1961 by Eric Thomas and its main asset was a controlling interest in the family company, NWN Media Ltd. The company publishes a number of local newspapers and originated as publisher of a railway timetable in Oswestry.

In July 2012, facing a decline in newspaper sales, the trustees received what they regarded as a generous offer from Tindle Newspapers Ltd. to buy as many shares in the family company as the trustees were willing to sell, provided Tindle acquired – either from the trust or from other shareholders – a controlling (51 per cent) interest in the company.

By the time of Tindle’s offer, the trust had three distinct sub-funds and three different groups of beneficiaries, comprising Mr Thomas’s three daughters and their respective families. One group, the Woodward family, wished to accept the offer from Tindle whilst the other two groups, the Bourne and the Moss families, were opposed to acceptance of the offer.

The trustees, who were all independent of the beneficiaries, found themselves in a difficult position and took advice. They were advised of their duty to act in the best interests of the beneficiaries, to treat all of them fairly and to maximise the value of the trust assets.

Taking all these factors into account, the trustees decided to proceed with the sale to Tindle. However, as the decision to sell a controlling holding in a family company was classed as a ‘momentous’ one, they were entitled to apply to the court for its approval of the action they were proposing to take. This they did.

In each of the Bourne and Moss funds, Mr Thomas’s daughters were entitled to the income from the fund whilst their respective adult children were entitled to the capital of the fund after their mother’s death. As they were together entitled to the assets in their fund, the beneficiaries could direct the actions of the trustees and call for the trust assets to be transferred as they directed. As such, the court found that the Moss and Bourne families could block the sale of the shares to Tindle and the trustees’ proposed action could not be approved by the court.