First contribution notice
The Pensions Regulator has issued its first contribution notice since the power to do so was introduced over five years ago. The formal determination of the Regulator’s Determinations Panel ("the Panel") was issued on 14 May, but it was only published yesterday and can be found here.
The contribution notice, for a sum of just over £5m, relates to the Bonas Group Pension Scheme and has been issued to Michel Van De Wiele N.V. ("VDW"), who are appealing the decision.
Contribution notices – general
A contribution notice (or "CN") is one of the two main tools that the Regulator has under the ‘moral hazard’ legislation with which to impose pension funding liabilities on parties who are not necessarily pension scheme employers. A financial support direction (or "FSD") is the other.
There are two main types of CN. The first type, which has existed since the legislation was first introduced, is triggered when (broadly speaking) steps are taken specifically in order to avoid or limit certain pension funding liabilities; the other type was introduced from 2008 and focuses primarily on the impact (rather than on the intention) of the parties' actions.
The CN in this particular case was of the first type.
This case
VDW was the holding company of the pension scheme's UK employer, which was the sole participating employer in the scheme at all material times.
The determination goes through the facts at some length, but at the heart of them lies a ‘pre-pack’ arrangement in December 2006 by which VDW put the UK company into administration and transferred its business and assets to a new company, leaving its pension liabilities behind. Since the introduction of the Regulator’s power to issue CNs, companies have generally been wary of entering into arrangements of this sort.
The Panel considered two main aspects of VDW's conduct as being possible triggers for the issue of a CN:
1. "Walking away without engaging openly with the trustees or the Regulator". The Panel felt that a more accurate description was that VDW had concealed the pre-pack plans from the trustees (until it was too late for the trustees to make a difference). In view of the steps that the trustees could have taken to require extra funding from VDW had they had this information, the Panel decided that concealing these matters from them was itself an act or omission by VDW which constituted grounds for issuing a CN. This is a very wide interpretation of the legislation.
2. "Retaining the business while avoiding the pension liability". This refers to the pre-pack itself. The Panel concluded that a main purpose of this was to avoid the risk of having to make a contribution to or provide financial support for the scheme. The Panel did also accept that a further purpose of the pre-pack was to keep the UK company's employees in work; this point is relevant because, in considering whether it is reasonable to issue a CN, the Regulator is required to have regard to "all the purposes of the act or failure to act (including whether a purpose of the act of failure was to prevent or limit loss of employment)". The Panel decided however that they did not need to reach a decision on this point 2, as they were satisfied as to point 1 above.
Two further aspects are also worth mentioning:
- The Panel decided that it would not be reasonable in the circumstances to issue a CN to VDW’s chairman (who was also the UK company's managing director). However, the fact that the point was considered provides a useful reminder of the fact that CNs can be issued to individuals as well as to companies (unlike FSDs).
- The amount specified in the CN was the figure required to bring the scheme up to PPF solvency level. However, not too much reliance should be placed on this as setting a precedent for future cases. In this instance, the Panel considered the PPF calculation to be reasonable because VDW had previously been advised that the financial commitments that they were likely to incur should they involve the trustees (and therefore the reason that they chose not to do so) would probably be based on the PPF funding measure.
VDW are appealing the decision. Whether or not they are successful, however, the approach adopted by the Panel vividly illustrates the importance that the Regulator attaches to the need to engage with trustees.
