Settlement reached in Pensions Authority’s case against firm linked to collapsed Dolphin Trust

A High Court action by the Pensions Authority against a company linked to the collapsed Dolphin Trust has been settled.

Under the settlement, Wealth Options Trustees Ltd (WOTL) is to retire in the next 12 months as trustee provider over small pension scheme funds used to invest in the German Property Group (GPG), formerly Dolphin Trust, which collapsed resulting in Irish investors being owed more than €100 million.

The settlement was without admission of liability on behalf of WOTL.

WOTL acted as a trustee for some 1,300 small self-administered pension schemes. Funds from 107 of these schemes were loaned on to GPG which was set up to buy and renovate listed and landmarked buildings in Germany.

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Irish investments went to GPG through two special-purpose vehicles called Dolphin MUT 103 Ltd and Dolphin MUT 116 Ltd.

Following the collapse of GPG, the Pensions Authority launched an investigation in March 2021 to look into the conduct of the relevant pension schemes of which WOTL was trustee and whether it was in compliance with its duties imposed by law.

As a result, the authority sought an order from the High Court seeking WOTL’s removal and replacement as a trustee and an order that it be disqualified from acting as a trustee for five years.

The authority, in its proceedings, claimed a distribution fee was paid to a linked firm called Wealth Options Capital (WOC), which had common shareholders and directors with WOTL.

The WOTL directors were Brian Flynn and Eanna McCloskey.  They, along with Dolphin Trust founder Charles Smethurst, currently face proceedings by the Dolphin MUT 116 liquidator who claims they were in breach of their directors’ duties, negligent and reckless in causing tens of millions of euro of creditors’ funds to be passed on to GPG.*

The authority claimed fees paid to WOC were not disclosed to the pension scheme members. The arrangement also incentivised WOTL to sell the GPG product to schemes of which WOTL was trustee or, at the very least, led to a perception to that effect, the authority said.

The structure of the investments on behalf of the Irish pension funds involved loan notes being issued and lent onwards to GPG which provided security on a pooled basis for the investment.

The authority said the pooled nature of the security meant WOTL could not give effect to the wishes of the individual small pension members, who might wish to have the security enforced, unless all other schemes in the pool were of the same view.

Therefore, a potential conflict of interest arose between WOTL’s pension trustee role and its role as holder of security for the loan notes.

There was a further conflict in the obligation to act in the best interests of the existing investors by the fact that WOTL shareholder directors stood to gain from the promotion of GCG product to new investors, it was claimed.

The authority wanted the court to disqualify WOTL for five years from acting as a trustee but was prepared to allow a six-month stay on that order to ensure the smooth and orderly transfer of functions to a replacement trustee.

WOTL had denied the claims.

The case was due for hearing for five days on Tuesday when Mr Justice Brian O’Moore was told the matter had been settled without admission of liability by WOTL.

The terms of the settlement were not revealed other than that the court was told that WOTL will be retiring from its position as trustee but it was envisaged that this will take at least 12 months to complete.

The judge congratulated the parties on coming to a resolution and said if there were any difficulties he would give liberty to re-enter the matter.

* This article was amended on 31st March, 2023