Pension liberation companies’ directors banned

Three directors who liberated nearly £12m worth of pension funds have received disqualification orders for a total of 34 years in the High Court after they were found to have misled investors.

The two companies at the centre of the case were G Loans and KJK Investments. The court heard that clients seeking a loan were offered one by G Loans, on condition they simultaneously invest their existing pension in KJK Investments shares – the value of that investment being typically twice the value of the loan they received.

KJK Investments advertised a potential 6% annual return on the investment and it was intended that the client’s pension would be used to repay the loan upon retirement.

Over 30 months, it received £11.9m in investments from 209 individuals. The court heard that the company loaned roughly half of this money to G Loans, on uncommercial terms, to enable it to make the loans to clients. Investors were, in effect, being loaned their own money. KJK used the remaining funds received through the scheme on sales commissions, worth £900,000, and director salaries of just under £500,000 as well as making loans to other companies on uncommercial terms.

The companies’ clients were exposed to tax charges amounting to as much as 55% of the loan they received. Taxation has reported on a few cases involving this arrangement (Danvers v CRC [2016] UKUT 569 (TCC), Franklin (TC7079) and Turner (TC7349)).

On becoming aware of the scheme, the Insolvency Service undertook a confidential investigation that resulted in both companies being wound up in the public interest in April 2015 after a petition to the court. Passing judgment in the Manchester High Court, the judge found that the directors had misled investors and deliberately caused the companies to obscure the relationship they had with each other, calling the scheme a ‘house of cards’.

Alex Deane, chief investigator for the Insolvency Service, said: ‘None of the directors expressed any real regret for deliberately misleading people who were mainly small pension investors, and who were targeted because they were unable to get credit and required cash. 

‘Pension liberation is being widely promoted as an easy way of gaining early access to pension savings. Any schemes offering such benefits should be viewed with caution and independent financial advice should always be sought before entering into such a scheme.’