The Hon. Mr Justice Deeny, sitting today in the Chancery Division of the High Court in Belfast, granted authority to the Trustees of the Presbyterian Church in Ireland to make an ex gratia contribution of £1m from its unrestricted charitable funds to an access fund which is being proposed as part of the Government’s “rescue package” in respect of the Presbyterian Mutual Society (PMS).

Last week the Presbyterian Church in Ireland and the Presbyterian Mutual Society (PMS) had a date in court to hear the decision about the hardship fund that the church would establish as part of the “rescue package.”  I am still waiting for the full decision to be posted, and appreciate the response I got from the court library that they would let the legal team know the decision is of interest and they should check it over promptly.

While I initially planned to wait for the full decision, my impatience got the better of me and I decided to post about the decision based upon the available information.  What we do have is the Summary of the decision — a document that is complete, concise, and clear enough that it was tempting to just post it without commentary.  The Summary has very little “legalese” in it and at two pages long makes for a quick and useful read.

To briefly cover the history of this situation, back in November 2008, when financial institutions were under pressure and failing, the Presbyterian Mutual Society experienced a “run on the bank” and could not liquidate its investment property fast enough or favorably enough to cover the demands for redemption.  The organization was put into administration and the investors took the administrator’s advice to “wind down” operations and try to recover some value from the real estate assets.  The situation is complicated or compounded on a couple of points.  First, the British Government has provided rescue packages for most kinds of financial institutions, but not the mutual societies.  A second complexity is that under British financial law there were two kinds of investors, with differing rights in receivership, based solely on the size of their investments.  The final question is what is the role and obligation of the Presbyterian Church in Ireland in this situation?  I will let the Summary pick up that thread.

The Court was told that the Presbyterian Church in Ireland had no legal responsibility for the PMS. This, however, was not apparent to very many members of the Church who tended to consider that the Church was responsible for the Society. Pressure has been put on the Church by those who have suffered hardship as a consequence of the PMS going into administration.

The legal situation is that the Mutual Society is a legally separate entity from the church but carried the church’s name, required investors to be members of the church, and was housed in the church’s offices and used the church’s web domain.  Throughout this situation the church has held to the claim that they have no legal responsibility but it has developed a realization and sense of moral obligation.  As part of this moral obligation, when a possible rescue package was developed last year the church agreed to participate in that package. Again, from the Summary:

The Minister for Enterprise, Trade and Investment has described the Government rescue package as a “mutual access fund”. It will consist of some £25m from the Government of the United Kingdom, £25m from the Northern Ireland Executive and the £1m from the Church subject to the approval of the court. These grants are coupled with the offer of a loan from the Government of the United Kingdom of a further £175m.

Now, note the line above about “subject to the approval of the court.”  For me, this was the new twist on the story that I found out about from this present court decision.  The Summary continues:

On 13 April 2010 a Special General Assembly passed a resolution to contribute £1m from its charitable funds towards a hardship fund. This stated:

“That in the event of the Government failing to secure a “commercial” solution and the NI Executive bringing forward a final comprehensive proposal which includes a “Hardship” Fund element, the General Assembly agree in principle to contribute £1m while affirming their view that the members of the PMS are thrifty savers and not risk taking investors.”

The general principle under law is that a charity is only allowed to make disbursements for charitable purposes. To do otherwise would be inconsistent with the purpose for which the charity was set up. It would also be an abuse of the privileged tax position which a charity can enjoy. The fund now proposed went beyond the relief of poverty and was not in law charitable as a result.

Mr Justice Deeny referred to case law which stated that the court (or the Attorney-General) has power to give authority to charity trustees to make ex gratia payments out of funds held in charitable trusts if there is a moral obligation to do so. He noted that such a power should not be exercised lightly and only in cases where it can be fairly said that if the charity were an individual it would be morally wrong of him to refuse to make the payment.

So, to use the funds in this manner requires court approval of a moral obligation.  This is where I was reading some quotes, either from the decision or said by Justice Deeny from the bench, in articles like the one from the Belfast Newsletter which says “In all the circumstances a moral obligation does exist on the church.  I
authorise the payment of up to £1m towards the mutual assistance fund.”  The Summary says:

Mr Justice Deeny stated that [small investors] will benefit to a considerable extent by the proposed scheme: “If the Church does not contribute it may well be that the scheme does not proceed and therefore the persons exposed to poverty will not be assisted”. If the fund comes to reality it will bring substantial relief to those impacted.

Only members of the Church could be members of the PMS. It would be paradoxical if the general body of taxpayers funded all of the assistance without any contribution from the only Church whose members would benefit from the fund. Such an outcome would, if it occurred, reflect badly on the Church.

Those are the important points from the summary.  We still await the full decision and the Summary cautions that it does not take the place of the full decision and they should be read together.  I will update here if there are additional details or interesting sections of the full decision.

It should also be noted that according to a PCI press release, the afternoon following the court approval the General Board met and approved the transfer of £1m out of the unrestricted fund.  They also responded to the Norther Ireland Executive’s request for a larger contribution by noting the lack of any more money to contribute to the rescue package.

This court authorization and the board action are very hopeful signs that after almost two and a half years there is finally concrete progress on the rescue package.  This still has a ways to go before the resolution is complete, but after many months of negotiations and speculation about a commercial rescue or a complete British bail-out, a package with government and church participation is at hand.