The Pensions Act 2004 (the "Act") allows the Pensions Regulator ("tPR") to issue Contribution Notices. Such a notice requires the party to which it is addressed to pay a specified amount to a named occupational pension scheme. tPR can issue a notice to any party that it believes was party to an act or failure to act, the purpose of which, or one of the main purposes of which, was to prevent the recovery of all or part of a debt that was, or that might become, payable from an employer to the scheme. Significantly, however, tPR can only issue a contribution notice if it is of the opinion that it is reasonable to do so. Also, it is worth remembering that it is possible to seek prior or 'after the event' clearance from tPR regarding any course of action or inaction.
The provisions of the Act have received significant publicity and are commonly something of which company directors and insolvency practitioners are aware. In light of that and the ability to approach tPR for clearance, it had not had reason to issue any Contribution Notices: but things have changed and tPR has recently issued its first notice, requiring a company to pay in excess of £5 million.
For a number of years, Bonas UK Ltd ("Bonas") had been struggling and non-profitable. After a period of consideration, it was placed into administration in 2006. However, it was agreed that a new company in the same group would purchase Bonas's assets and take on its employees in what is commonly referred to as a 'pre-pack' transaction. Critically, however, the insolvent Bonas retained the liability to fund its defined benefit pension scheme.
tPR took the view that, although there were other reasons for the 'pre-pack', one of the main purposes of it was to prevent the recovery of all or part of a debt that was, or that might become, payable by Bonas to the scheme. tPR further took the view that Bonas's parent company, Michel Van De Wiele NV ("MVDW"), was party to that course of action and has issued the Contribution Notice to it.
tPR acting chief executive, Bill Galvin spoke of the decision to issue the Contribution Notice, saying: "Where attempts are made to avoid companies' pension obligations we will use our 'moral hazard' powers to protect members' benefits and the Pension Protection Fund."
When issuing the notice, tPR condemned the parties for failing to advise the scheme trustees of the plan to put Bonas into administration, for deliberately concealing their intentions and for failing to engage openly with tPR about its plans – especially as it may have been possible to agree a negotiated solution that was acceptable to the scheme trustees and tPR.
Although MVDW has lodged an appeal against the Contribution Notice, this is a clear indication that, where it feels circumstances merit its doing so, tPR will have no hesitation in issuing such notices.
In light of this and tPR having issued a Financial Support Direction in another case (requiring a party to provide financial support to an inadequately funded employer), it is more clear than ever that serious consideration should be given to pension scheme liabilities in the context of corporate activity and restructuring.
Disclaimer
The material contained in this article is of the nature of general comment only and does not give advice on any particular matter. Recipients should not act on the basis of the information in this e-update without taking appropriate professional advice upon their own particular circumstances.
Disclaimer
The material contained in this article is of the nature of general comment only and does not give advice on any particular matter. Recipients should not act on the basis of the information in this e-update without taking appropriate professional advice upon their own particular circumstances.
