The Pension Protection Fund ("PPF") has updated its
approach to employer restructuring guidance and its general
guidance for restructuring and insolvency professionals. These
documents set out certain criteria that should be met when making
proposals to the PPF in respect of a sponsoring employer suffering
an insolvency event.
1. The PPF Approach to Employer Restructuring:
The PPF states that it will only take part in a restructuring if
the below principles are met. Such principles are designed to
ensure the pension scheme is in a significantly better position
than it would be in through a normal insolvency process. There are
seven principles that are applied when considering any entity,
irrespective of the type of restructure or rescue. In summary,
Insolvency must be inevitable;
The pension scheme will receive money or assets which are
significantly greater than it would otherwise receive through
What is offered to the pension scheme is fair in comparison to
what other creditors and shareholders would receive;
The PPF will receive at least 10 per cent equity in the
restructured company for the scheme if future shareholders are not
currently involved or 33 per cent if the future shareholders are
The pension scheme would not be better off it the Pensions
Regulator issued a contribution notice of financial support
Where there is a refinancing, bank fees are reasonable;
The party seeking to restructure pays the costs incurred by the
PPF and the trustees.
2. General Guidance for Restructuring and Insolvency
The overriding objective in dealing with pension scheme members,
transferred into the PPF, is to ensure that the right amount is
paid to the right person at the right time.
This general guidance sets out the criteria restructuring
practitioners should incorporate in any proposals made to the PPF
in respect of an insolvent pension scheme employer. The guidance
further works to provide information on how IPs should interact
with the PPF during the assessment process. During this assessment
period, the role of creditor of the employer (on behalf of the
pension scheme trustees) passes to the PPF in relation to the money
due to the pension scheme; the rights and powers of the trustees to
represent the pension scheme as a creditor generally cease during
this period. In practice, the assessment period will typically last
between a year and two years, although this will vary depending on
the complexity off the financial situation being reviewed.
The PPF will only assume responsibility for a pension scheme
A qualifying insolvency event has occurred in relation to an
eligible pension scheme;
A pension scheme has not been rescued;
There has not been a withdrawal event; and
The valuation of the pension scheme shows that the assets of
the pension scheme are below the amount required to fund the PPF
level of protected liabilities.
Where these conditions are not met, the PPF will cease to be
involved with the pension scheme and the creditor rights will pass
back to the trustees.
For further information, please consult the detailed guidance,
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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