ML Covered - June 2025

We are pleased to share our latest instalment of ML Covered, our monthly round-up of key events relevant to those dealing with Management Liability Policies covering D&O, EPL and PTL-type risks.

Insolvency statistics for Q1 2025 offer a hint as to the sectors that may be impacted most by claims against former directors

The number of insolvencies has been steadily rising since 2020, with the last six months seeing a growth in the number of winding up petitions filed in the Insolvency and Companies Court. The number of petitions rose by 573 between Q3 and Q4 2024, with the numbers seen in Q1 2025 being similar to the preceding quarter.

There are reports that Q1 2025 was one of the busiest periods for the Insolvency Courts with more than 3,700 scheduled hearings. This was approximately a 25% increase compared to the same quarter in 2024. The increase in firms finding themselves in such situations is likely due to rising operating costs over the last few years, including higher energy prices. The recent increase in National Insurance Contributions and minimum wage, as well as the current global tariff war, may result in the increase continuing.

Looking at the data in further detail, 2,093 winding up petitions were filed at the Insolvency and Company Court in Q1 2025. Of these, 1,069 were issued by HMRC, a significant rise compared with the 630 filed by HMRC in Q3 2024. This may be attributable to company directors spending VAT collected, or PAYE or National Insurance contributions deducted from pay, and not then having the monies available to pay HMRC when the tax is due. HMRC may take steps to file a winding up petition against firms that have not paid their liabilities.

The largest number of winding up petitions in Q1 2025 were filed again companies in the construction sector. Of the 583 claims, 230 were brought by HMRC, continuing the theme of companies being unable to pay tax bills. The consumer products sector also saw a significant number of winding up petitions in Q1 2025. This sector has faced many challenges in recent years, including global supply chain issues and the cost-of-living crisis, which have resulted in many firms not being able to pay creditors.

Key Takeaways

We will have to see whether the high number of winding up petitions issued by HMRC results in an increased number of claims against the former directors. If a firm has not paid their tax liabilities, and an insolvency practitioner (IP) has been appointed, the former D&Os may find themselves on the receiving end of questions and requests for documents from the IPs.  

D&O insurers providing cover for directors in the construction industry will be mindful of the risks that continue to face this sector.  Furthermore, D&Os of companies facing financial difficulties need to be mindful that creditors' interests arise when directors know, or should know, that the company is insolvent or bordering on insolvency, or that insolvent liquidation or administration is probable.

It remains to be seen whether an increase in insolvency claims activity will have an impact upon the D&O market conditions and whether we may see insurers increase premiums and limit their risks accordingly.

To read our blog which considers this in more detail, please click here.

Court rejects claim that defendants owed fiduciary duties, as partners or as joint venturers, in a renewable energy business

In Glenn and another v Walker and others [2025] EWHC 1286 (Ch), the Court found that no fiduciary duties were owed between the parties, either as partners or joint venturers, in relation to their involvement in a renewable energy business.

Facts

In early 2014, Mr Glenn and Mr Slater (the Claimants) entered into a business relationship with Mr Dyer, and later Mr Walker (the Defendants) for the purchase of renewable energy assets. The business was conducted through a series of companies.

The Claimants alleged that they had entered into either a partnership or a joint venture with the Defendants. They claimed that the Defendants breached their fiduciary duties to the Claimants, either as partners or joint venturers, by plotting the exclusion of the Claimants from the alleged partnership/joint venture and by diverting business opportunities to themselves.

The Defendants argued that no partnership ever existed between them and the Claimants, or that they were subject to any fiduciary duties arising from their involvement in the alleged joint venture. Even if fiduciary duties were owed, the Defendants denied that they had acted in breach of their fiduciary duties. Rather, they sought to agree an exit due to genuine concerns regarding Mr Glenn's conduct, but before they were able to consider the position fully and to sound out whether or not to take this step, Mr Glenn pulled the trigger first to wind up the business relationship.

Decision

The Judge dismissed the Claimants' claim in its entirety. The Judge ruled that no overarching partnership existed because the parties had chosen to conduct their affairs through a corporate structure and there was no business over and above that being carried on by the companies. The Judge therefore concluded that there was no real scope for finding that fiduciary duties arose between the Claimants and the Defendants in the context of a joint venture.

The Judge ruled that even if a partnership had come into existence between the Claimants and the Defendants, it was a partnership at will and was dissolved on or shortly after 15 February 2018 (being when Mr Glenn told the Defendants that he no longer wanted to work with them) with any fiduciary relationship also coming to an end. Given this, the Judge did not consider there was any continuing obligation on the part of the Defendants not to benefit themselves at the expense of the Claimants, or to avoid a conflict of interests going forward. Rather, after the events of 15 February 2018, the Defendants were entitled to look after their own interests, as were the Claimants.

Takeaways

The judgment serves as a reminder to officers of businesses that their arrangements and terms of business should be clearly set out to protect themselves and to ensure that fiduciary obligations arise.

To read the judgment, please click here.

SCUK's Interpretation of the Equality Act 2010

As you will have no doubt heard, on 16 April 2025, the UK Supreme Court (SCUK) handed down its ruling in the case of For Women Scotland Ltd v The Scottish Ministers [2025] UKSC 16 (the Judgment) in which the Court concluded that the definition of a "woman", for the purposes of the Equality Act 2010 (the Equality Act) refers to "biological" sex, as opposed to "certified" sex.

The decision establishes that trans women who possess a Gender Recognition Certificate (GRC) fall within the legal definition of a "man" for the purposes of the sex discrimination provisions of the Equality Act (and trans men a "woman"). It is worth noting that the sex discrimination provisions of the Equality Act have always used a biological sex definition in respect of trans people who do not hold a GRC (roughly 90% of the trans population).

This case was about whether the Equality Act takes a different approach in respect of those trans people who do have GRCs. The direct impact of the Judgment in strict legal terms is therefore limited to trans people who hold a GRC and to sex definitions for the purposes of the Equality Act. However, the indirect effect of the Judgment in terms of human impact and social discourse has of course been wider than this.

Guidance

In response to the Judgment, the Equality and Human Rights Commission (EHRC) has issued interim guidance on the practical implication of the Supreme Court's ruling. The EHRC aims to provide an updated Code of Practice on services, public functions and associations (the Services Code of Practice) to provide more clarity on the consequences of the Judgment, later this year. However, this is not likely to provide any additional guidance for employers navigating the impacts in the workplace.

For employers and service providers, a significant question remains as to how the Equality Act (as interpreted in the Judgment) interacts with the Workplace (Health, Safety and Welfare) Regulations 1992, which requires separate toilets to be provided for men and woman, unless each toilet is a separate lockable room with a wash basin. Whether these terms adopt a biological sex meaning is not yet certain.

Recommendations for employers

Regardless of the ruling, it is, as it was before the Judgment, necessary for employers to ensure they are protecting trans employees' rights and that there are appropriate facilities in place for safeguarding all employees. In the light of the Judgment, employers should consider how any existing policies may be affected by the Judgment, including in light of the EHRC's interim recommendations. Employers will need to ensure that trans employees are not subject to discrimination or harassment and that trans employees' privacy rights are protected in the process of any potential changes. One area to be mindful of is whether an individual possesses a GRC, as it is a confidential matter, and it constitutes sensitive health data; therefore, it is not something to be asked about or, if known, shared in the workforce.

It is worth noting that the Judgment solely concerns the sex discrimination provisions of the Equality Act and that trans employees remain protected by the protected characteristic of "gender reassignment" under the Equality Act. Employers need to be alive to the need for sensitivity when implementing or changing any existing policies as a result of the Judgment and of the need to appropriately balance legal obligations in relation to the protected characteristics of sex and gender reassignment alongside their Health and Safety obligations. Specific legal advice is prudent.

What this means for insurers?

As you will have seen in the press coverage around this case and the celebrations and commiserations which took place outside the court room when the various interest groups heard the Supreme Court's ruling, this is a divisive topic, and it has already been confirmed that the ruling is likely to be challenged at the European Court of Human Rights in various ways. This is therefore unlikely to be the last we hear about this ruling. Given that this is such a sensitive issue to navigate and involves balancing different individuals' rights and identities, with only interim guidance (which has itself received criticism) currently available to assist those in the workplace responsible for attempting to do so, it is a ripe area for disputes to arise and claims to be issued. 

UK Government pushes pension funds to invest in private assets

The Chancellor, Rachel Reeves, has announced plans to introduce legislation that would give ministers a “backstop” power to compel large UK pension schemes to allocate a greater share of their portfolios to private market assets, if the current voluntary commitments under the updated "Mansion House Accord" fail to deliver the desired results.

As part of the "Mansion House Accord", seventeen of the UK’s largest pension funds have pledged to invest a minimum of 10% of their assets in private markets by 2030, with at least half of that investment directed toward UK-based opportunities. This builds on the original 2023 pact under then-Chancellor, Jeremy Hunt, which encouraged a 5% investment target, with the aim of enhancing returns for pension savers and stimulating long-term investment into UK infrastructure, clean energy, and high-growth sectors such as life sciences. Treasury officials estimate the initiative could unlock up to £50 billion in private capital, with £25 billion expected to be invested in the UK economy.

The proposal has attracted criticism from the pensions industry and the signatories of the Accord, cautioning against government overreach in investment decisions affecting pension savers. Industry observers have also noted the limited impact of the initial pact, with defined contribution schemes allocating only around 2% of assets to private equity and infrastructure as of last year.

Government confirms intention to legislate for release of Defined Benefit surpluses

The government has confirmed it will legislate to enable the safe release of defined benefit (DB) pension scheme surpluses, as part of the upcoming Pension Schemes Bill. The aim is to unlock additional investment into the economy and provide benefits for scheme members, while maintaining strong member protections.

According to the Department for Work and Pensions (DWP), the majority of DB schemes are now in surplus, with aggregate funding levels at historic highs. The number of schemes fully funded on a technical provisions basis has reportedly increased from 600 in 2019 to over 1,800 in 2024. At the same time, annual employer contributions to address deficits have decreased from £16bn in 2010 to less than £5bn in 2024.

Under the current legislative framework, a large number of schemes are restricted from accessing surpluses even in cases of sustained overfunding. The proposed legislation is expected to give trustees and sponsoring employers the power to access a portion of a scheme’s surplus in circumstances where the scheme’s funding position meets prescribed thresholds. The proposal is framed as a mechanism to deliver productive use of capital, enabling employers to reinvest in their businesses and increase wages, while simultaneously allowing surplus funds to support members’ benefits where appropriate.

PTL insurers may want to ask at renewal whether there is any intention to use a statutory override and/or return a surplus.  There is scope of challenge to the trustees and the employer of a scheme when it comes to return of surplus and those involved will want to ensure they receive advice on not only whether they have the relevant powers under the scheme rules, but also the process and considerations needed to be taken into account before exercising any power to return a surplus.

Ombudsman dismisses complaint despite absence of Scorpion Leaflet

The Pensions Ombudsman (TPO) has dismissed a complaint concerning a 2014 transfer of defined contribution pension benefits that resulted in the member falling victim to pension liberation fraud. In Mr N (CAS-76635-M4T9), TPO concluded that the scheme administrator met the statutory and regulatory requirements applicable at the time and was not liable for the complainant’s financial loss.

Background

The complainant was a member of the Legal & General (L&G) Personal Pension Scheme. In April 2014, the complainant was approached by an unregulated Gibraltar-based financial advisor, who recommended that the complainant transfer his pension into a qualifying recognised overseas pension scheme (QROPS). In October 2014, following receipt of the complainant's signed discharge form and proof of his identity, the administrator of the L&G scheme transferred the complainant's benefits of £39,294 to the QROPS.

The transfer occurred during a period of increasing concern around pension liberation fraud. In February 2013, the Pensions Regulator (TPR) had issued the infamous “Scorpion” leaflet and accompanying fraud action pack to warn schemes and members of associated risks. The guidance outlined circumstances in which scheme administrators should exercise caution and contact the member directly.

In 2019, the complainant, via the Financial Repayment Service, submitted a complaint alleging that the administrator had failed to perform adequate due diligence, particularly in not issuing the Scorpion leaflet or investigating the adviser’s credentials.

The Decision

TPO did not uphold the complaint. While expressing sympathy for the complainant’s loss, the Ombudsman held that the administrator had a statutory obligation to process the transfer, which the complainant was legally entitled to request.

The administrator was found to have followed the appropriate procedures in place at the time. The Ombudsman noted that there was no clear evidence of warning signs that would have triggered further investigation or direct contact with the member under the 2013 regulatory guidance. TPO also noted that it was not a legal requirement to issue the Scorpion leaflet, and it was determined, on the balance of probabilities, that the complainant would have proceeded with the transfer even if he had received it.

Key Takeaways

This determination reaffirms the principle that scheme administrators (and trustees without third party administrators) are not expected to assess the quality of member financial advice and must be judged based on the legal framework in place at the time of the transfer. While the landscape surrounding pension transfers and fraud prevention has evolved significantly, with stricter due diligence and protections introduced in recent years, scheme administrators operating in 2014 were primarily obliged to comply with statutory transfer rights and existing guidance.

To read the decision, please click here.

Court upholds finality of Ombudsman determination - Wilson v Port of Felixstowe Pension Trustee Ltd [2025] EWHC 1271 (Ch)

The Chancery Division has recently handed down judgment striking out a claim by a scheme member, who was seeking a declaration on the interpretation of pension plan rules governing incapacity benefits, on the basis that TPO had previously dismissed a complaint brought on the same grounds. The court held that the claim disclosed no reasonable grounds and constituted an abuse of process.

The claimant was a member of the Port of Felixstowe Pension Plan, and the defendant was the trustee of that plan. The claimant had been awarded a 'Lower Tier' incapacity pension under the rules of the plan and raised a complaint with TPO over the trustee’s interpretation of the rules. The Ombudsman dismissed the complaint in November 2022. The claimant did not appeal that decision and instead issued court proceedings raising the same construction issue.

The court ruled that TPO had expressly determined the key interpretative issue concerning incapacity provisions (Rules 4.2.1 and 4.2.3), including the meaning of “an employment”. As the claimant had not appealed, the determination was binding under section 151(3) of the Pensions Schemes Act 1993. Relying on CMG Pension Trustees Ltd and CPR rules 3.4 and 24.2, the court struck out the claim and granted reverse summary judgment.

This case reinforces the binding nature of an Ombudsman determination that is not appealed and confirms that attempts to reignite such matters through the courts will be treated as an abuse of process.