The Pension Schemes Act 2021 received royal asset on 11 February 2021.  It makes significant changes to the regulatory regime for defined benefit pension schemes.  First, subject to important qualifications, it criminalises conduct which detrimentally affects in a material way the likelihood of pension scheme members receiving their benefits.  It also makes it a criminal offence (simplifying) to prevent the recovery of the whole or any part of the statutory debt in favour of a pension scheme trustee that arises on an employer's insolvency, or to prevent or reduce the amount of that debt.  Secondly, it widens the Pensions Regulator's powers to impose liability (as Contribution Notices) on parties connected or associated with a scheme's sponsoring employer.  (Note that the Regulator has in the past contended that a PE fund acquiring the business and assets of a company out of administration was connected in this sense.)  

These developments coincide with the end (in March 2021) of the Silentnight case, an almost 10 year-long investigation by the Pensions Regulator in which it sought to impose £100m in Contribution Notices against the PE sponsor following its "loan-to-own" acquisition of the Silentnight business out of a pre-pack administration in 2011.  Our pensions litigation team acted for the PE sponsor in the latter stages of the case.  As stated in the Regulator's public report on the matter, the case settled for £25m. 

In light of these changes, the risks of proceeding with a restructuring that involves separating the business from the pension scheme, without the Regulator's express consent (and the PPF's non-objection) to the terms of the transaction, have become more acute.  While in the case of Johnston Press the bondholders acquired the business out of insolvency leaving the pensions scheme behind without the Regulator's consent and without inviting a regulatory response, the scope for this in the future is now, in our view, more limited (and the Regulator would at a minimum always investigate).  Any prospective purchaser would need to proceed extremely carefully. 

The obvious mechanisms to eliminate or reduce regulatory risk and the risk of criminal sanction are Regulated Apportionment Arrangements (RAAs) and clearance.  However, both RAAs and clearance will have a "price" in any given case, which the Regulator will demand as a quid pro quo for sanctioning the transaction in question.  Identifying the realistic level of that price and conducting an efficient negotiation to get it agreed can be challenging. 

The key, in our experience, is to plan early and to try to carry all relevant parties (Trustees, Regulator, PPF, employer) with you. 

Our experience of pensions-led restructurings includes Kodak, Halcrow and British Steel, and our experience of investigations by the Pensions Regulator covers Nortel, Box Clever, BHS, Toys R Us, Bernard Matthews, and Silentnight.  Our recent restructuring experience includes Virgin Active, Smile Telecom, NCP, DTEK, Regis and New Look.

Authored by Matthew Bullen.