Part 1 – TPR Contribution Notice against Director upheld

In Pelgrave v The Pensions Regulator[1], the Upper Tribunal (Tax and Chancery Chamber) considered whether Elizabeth Ann Pelgrave should be subject to a contribution notice (CN) under section 38 of the Pensions Act 2004. The case arose from a determination by the Pensions Regulator’s Determinations Panel, which issued a CN for £180,218.50 (plus time adjustment), later increased to £360,437. The Tribunal ultimately varied the amount to £245,749 plus interest.

Background

Pelgrave was one of two directors of Discovery Flexibles Limited (DFL), the sole sponsoring employer of a defined benefit pension scheme (the Danapak Flexibles Retirement Benefits Scheme), and held a 25% share in its parent company – Discovery Flexibles Holdings Limited (DFHL). The Regulator alleged that Pelgrave was party to three acts that extracted value from DFL during a period when the scheme was in deficit and DFL was making minimal contributions.

The three acts were:

1. Monthly payments to her brother and his wife, labelled as “management charges” or “dividends”;
2. An £800,000 drawdown from DFL’s finance facility used to fund the purchase of shares in the parent company, paid to an associated company (Pink Printers Ltd) as an unsecured, interest-free loan later written off. The Regulator says that this led to DFL being financially weakened and no longer having the £800,000 available for the scheme, while Pelgrave received £360,437 of that money in or about March 2016 as the purchase price for her shares in DFHL; and
3. Use of DFL’s assets to support other group companies, resulting in a £224,481 debt write-off.

Tribunal’s decision

The Tribunal found Pelgrave was a party to the second act, having knowingly agreed to sell her shares with knowledge that the funds came from DFL. This transaction materially weakened DFL’s financial position and its ability to meet pension obligations. The Tribunal rejected her argument that she was merely a passive or paper director with no actual control or decision-making powers and limited knowledge of the scheme. The Tribunal emphasised that being “party to” an act includes participation or knowing assistance.

However, the Tribunal did not find sufficient material detriment or involvement in the other two acts. It concluded that the monthly payments were legitimate remuneration and the debt write-off was commercially justified.

On reasonableness, the Tribunal considered Pelgrave’s financial circumstances, including tax paid and gifts made to her children, and determined that a CN of £245,749 plus interest was appropriate. The decision clarified the interpretation of “party to” under section 38 and reinforced the Regulator’s powers to protect pension schemes from value extraction.

Implications for company directors

The case has several important implications for company directors, particularly those involved with sponsoring employers of defined benefit pension schemes.

Directors’ Personal Liability

Directors can be held personally liable for actions that materially detract from a pension scheme’s funding position. Even if a director does not directly execute a transaction, being “party to” it—through knowledge, approval, or facilitation—can trigger a Contribution Notice (CN) under section 38 of the Pensions Act 2004.

Broad Interpretation of “Party To”

The Tribunal confirmed that “party to” includes:

• active participation;
• knowing assistance; and
• passive acquiescence, if the director is aware and does not object

This means directors cannot shield themselves by claiming they were passive or uninvolved if they had knowledge of the detrimental act.

Importance of Financial Diligence

Directors must ensure that transactions involving company funds—especially those benefiting shareholders or related entities—are:

• commercially justified;
• properly documented; and
• not detrimental to the pension scheme

Failure to do so may result in regulatory action, even years after the transaction.

Reasonableness and Financial Circumstances

When determining the amount of a CN, the Tribunal will consider:

• the director’s financial position;
• tax paid on received funds;
• gifts or transfers made; and
• the proportionality of the CN to the detriment caused.

This provides some scope for mitigation but does not eliminate liability.

Group Structures and Intercompany Dealings

Directors in group companies must be cautious about intercompany loans, asset transfers, and guarantees. If these transactions weaken the sponsoring employer’s position, they may be scrutinised—even if they appear commercially reasonable.

Regulatory Oversight

The case reinforces the Pensions Regulator’s proactive stance in protecting pension schemes from value extraction. Directors should expect increased scrutiny and should maintain clear records and justifications for all significant financial decisions.

[1] [2025] UKUT 257 (TCC)

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   • Justin McGilloway

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   • Pensions & Employee Benefits

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