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, these are:
1) Insolvency must be inevitable;
2) The pension scheme will receive money or assets which are significantly greater than it would otherwise receive through normal insolvency;
3) What is offered to the pension scheme is fair in comparison to what other creditors and shareholders would receive;
4) 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 involved;
5) The pension scheme would not be better off it the Pensions Regulator issued a contribution notice of financial support direction;
6) Where there is a refinancing, bank fees are reasonable;
7) The party seeking to restructure pays the costs incurred by the PPF and the trustees.
2. General Guidance for Restructuring and Insolvency Professionals:
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 where:
1) A qualifying insolvency event has occurred in relation to an eligible pension scheme;
2) A pension scheme has not been rescued;
3) There has not been a withdrawal event; and
4) 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.