Insolvency of Funeral Plans Provider Left Administrators Facing a Conundrum


Some corporate insolvencies can have distressing results for ordinary members of the public and require particularly sensitive handling. That was certainly so in the case of a funeral plans provider which had about 46,000 plan holders, many of them elderly or vulnerable, when it fell into administration.

Plan holders purchased their plans, which were meant to pay for their funerals, either by way of lump sums or by deposits and instalments. Their money was held in a trust fund, kept separate from the provider. On their appointment, however, administrators found a significant shortfall in that fund. Current plan holders were expected to receive only 11-15p for every pound they had invested.

At the height of the COVID-19 pandemic, the administrators were faced with a binary conundrum: either to leave plan holders and their loved ones to fend for themselves pending distribution of the fund or to attempt to provide interim assistance. In taking the latter course, they entered into an agreement with a leading funerals company.

After initially providing free funerals for plan holders, the company laid on funerals for a further six months (the interim period) on a non-profit basis. Altogether, it provided over 400 funerals under the agreement. Whether or not it acted entirely altruistically, it stepped in when others in the funeral industry did not, thereby relieving the distress of many families who lost loved ones during the interim period.

The administrators launched proceedings seeking High Court approval of payments due to the company under the agreement. Those payments could only be made at the expense of living plan holders in that their distributions from the fund would be reduced by about £13 each.

The administrators argued that the agreement was entered into for the benefit of all plan holders in that it effectively extended their cover during the interim period. It represented a commercially sensitive and prudent step, driven by the need to continue to hold funerals following the provider’s insolvency.

In granting its blessing to the payments, the Court found that the administrators properly exercised their power under the terms of the trust to use money from the fund to pay for funerals, rather than distributing it to plan holders. The agreement relieved the inevitable uncertainty felt by all plan holders and the administrators’ reasons for entering into it were overwhelming.

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