On 26 August 2018 the Department for Business, Energy and Industrial Strategy (“BEIS“) published the Government’s response to the consultation on measures designed to improve corporate governance within companies which are in or approaching insolvency.
A string of prominent pre-pack insolvency arrangements whereby pension schemes are off-loaded to the Pension Protection Fund (“PPF“) whilst at the same time permitting struggling businesses to be sold have led many to comment that action is needed sooner rather than later to prevent continued abuse of the PPF.
With the House of Fraser’s pension schemes due to enter the PPF’s assessment period after the company was purchased as part of a pre-pack this topic is under the spotlight more than ever before.
Crackdown on reckless directors
A press release from BEIS on the same date as the consultation response entitled “Crackdown on reckless directors” confirms that:
- boardrooms will be expected to explain to shareholders how they can afford to pay dividends alongside capital investment, workers’ rewards and pension schemes;
- struggling companies will be given more time to try to rescue the business and help safeguard jobs; and
- directors who have dissolved companies to avoid paying workers or pensions could be disqualified or fined by regulatory authorities for the first time.
These and other measures designed to protect workers and small suppliers will be set out in further detail in the autumn.
Role of the Pensions Regulator
Many in the industry are hoping that the Pensions Regulator will be given enhanced powers to ensure that where there is a material scheme deficit, the payment of dividends or the sale of a company will not jeopardise the solvency of the fund. One suggestion in the consultation response is that where there is a deficit, directors should have to make a statement before declaring a dividend that the company will continue to be able to comply with the terms of any contribution agreement negotiated with the trustees.
The idea of providing fuller disclosure of details of a deficit reduction plan was also floated – this would go some way to providing stakeholders with useful additional information with which to hold management to account for decisions on pay out policy.
Wedlake Bell comment
As the title to this piece states – “change is coming”. This consultation follows hot on the heels of this years’ White Paper “Protecting Defined Benefit Pension Schemes” (March 2018) and “The Protecting Defined Benefit Pension Scheme – A Stronger Pensions Regulator” consultation (June 2018). Measures to ensure there are clearer funding standards for all pension schemes and that the Pensions Regulator has enhanced powers to obtain the right information when it is needed and new powers to strengthen existing safeguards are on their way, and the majority will say, rightly so. However, any new measures must also be balanced to ensure that legitimate commercial transactions are now unduly hampered by restrictive pensions red tape. Watch this space.