UK: DWP Launches Consultation On Drafting Amendment To Corporate Restructuring Easements

Where an employer/trustees are considering the treatment of a potential Section 75 debt (a "statutory debt"), changes to the Employer Debt Regulations since the 2005 regulations first came into force mean that there are now seven main ways to manage that liability: five methods of apportioning employer debt liabilities, and two restructuring easements.

In practice, a flexible apportionment arrangement (first introduced on 27 January 2012) is the most frequently used method. In contrast, the two corporate restructuring easements are rarely used, primarily because of the number of somewhat impractical steps imposed in order for companies to take advantage of these easements, and also because of concerns as to a lack of clarity in the drafting.

The policy intention underlying the restructuring easement was to provide that in a multi-employer scheme, where an organisation was undergoing internal restructuring and in effect merely changing its status, if all other things remain the same, the "receiving employer" could be the new legal status of the exiting employer. The DWP consultation gives the example of an organisation changing from an unincorporated charity to an incorporated charity.

However, the drafting of the regulations lacked clarity around the meaning of the "receiving employer" in this context.

The DWP consultation noted that this uncertainty meant that the easement is rarely used, "rendering it of limited practical value", and quite sensibly proposes to remove this second limb of the definition with effect from 1 October 2013.

Although the scope of the consultation is narrow in relation to the drafting changes, and is unlikely to alter greatly the use of the corporate restructuring easements, the questions asked in the consultation paper are broad and include "if this provision is not being used, do you know why?" The consultation also asks whether the flexible apportionment arrangement is widely used in circumstances otherwise thought to be covered by the restructuring easement. It appears that the DWP are concerned whether the easements are being used in practice, and it is entirely plausible that this consultation is part of an information-gathering exercise with a view to making further, more substantive, amendments to the regulations. We will, of course, keep you posted on any further developments.

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