Last week (27 March 2024), the Pensions Regulator (TPR) released a report on how it exercised its anti-avoidance powers to secure a £3.5 million payment into the Newburgh Engineering Co Ltd Pension and Assurance Scheme (the “Scheme”).  In essence, corporate restructuring resulted in manufacturing company Newburgh Engineering Co Ltd (the “Employer”) being unable to pay the section 75 debt when it later entered administration. 

Background

  • March 2014 – the Scheme had a Part 3 funding deficit of £2.32 million. 
  • 2005, 2014 and 2017 – the Employer conducted “a series of corporate restructurings whereby significant assets… were transferred to other group entities”. The six companies that received these assets were part of the IMS Group (which “was controlled by a small group of individuals holding multiple concurrent roles within the group”). 
  • October 2018 – the Employer went into administration, thus triggering a section 75 debt of £8.84 million and the Scheme entering into the PPF assessment period.
  • January 2019 – the Employer entered into creditors voluntary liquidation. 

TPR action

Note that the IMS Group was ultimately owned by a trust (a family discretionary trust with over 100 beneficiaries). The IMS Group explained that the restructurings were done to “deliver the maximum funds to the trust in the most efficient manner possible with a view to the trust holding no assets and being in a position to wind up between April 2021 and December 2024”.

TPR concluded that:

  • protecting the value of the IMS Group and interests of its shareholders was “undoubtedly the effect” of the restructuring, “irrespective of their intention”, and
  • “no proper mitigations [had been] given to either the Employer or Scheme for this restructuring”. 

Accordingly, in March 2021, TPR issued warning notices seeking financial support directions against the six recipient companies within the IMS Group, on the basis of the significant detriment caused to the scheme between 2005 and 2018.  During this period TPR said that the six companies received “significant financial support” from the employer, whose covenant was eroded to the point of eventual insolvency.  No proper mitigation was provided to the Employer or the Scheme.

Ultimately, TPR agreed a settlement whereby £3.52 million was returned to the Scheme – which TPR cite as a positive result, given that it “represented all the targets’ cash assets and around 80% of their estimated available assets” (albeit much less than the £8.84 million section 75 debt).  The scheme has now transferred to the PPF.

Comment

This regulatory action by TPR demonstrates its willingness to act where corporate restructurings have occurred to render a scheme vulnerable, especially where mitigations have not been considered.  It is also a good example of TPR taking a pragmatic approach to reach a settlement where limited assets are available and securing an agreement without disproportionate costs is in the interests of both the scheme members and the PPF.

The action also demonstrates how TPR will exercise its updated regulatory functions - in particular, the new “regulatory oversight” function, which aims to to protect savers via “effective and efficient delivery of regulatory compliance services, targeting schemes and employers”. You can read more about the TPR restructuring here.

This article was written by Callum Duckmanton and Clive Pugh.