The Pensions Regulator's Determinations Panel has determined that a contribution notice ("CN") be issued against an individual, following the Regulator having settled action for a proposed CN against two companies, in relation to the Carrington Wire Defined Benefit Pension Scheme ("the Scheme").  

The action by the Regulator is further evidence that it will not allow attempts to abandon defined benefit pension schemes to go unpunished.  

The facts

The essence of the Regulator's case was that an individual, Mr Richard Williams, had colluded with the Russian owners ("Severstal") of the Scheme's English employer in making a deal that effectively abandoned the Scheme. 

Severstal had guaranteed the liabilities of the employer to the Scheme, although the guarantee applied only whilst it owned the employer.

The employer was failing and Severstal was looking to exit from it.  Initial attempts to bring that about proceeded in an appropriate manner, with Severstal having introduced two bidders for the employer to the trustees, with those bidders presenting to the trustees about their future plans. Neither bidder impressed the trustees, particularly as neither was prepared to offer a replacement guarantee. Accordingly, no sale proceeded at the time (Christmas 2009).

The trustees were understandably concerned by the prospects for the employer, but both they and the Regulator received assurances from Severstal that it intended honouring the guarantee and had no intention of abandoning the Scheme.

Mr Williams was behind one of the failed bids and he kept in touch with Severstal, seeking various ways of doing a deal with Severstal.  Ultimately, in June 2010 the employer was sold to Mr Williams' new vehicle for £1, with a "working capital adjustment payment" to be made to the employer, up to a maximum amount of £400,000.

The only provision made in relation to the Scheme was that a sum, limited to the market value of the employer's premises at the time of the closing of the share sale, had to be paid to the Scheme following any sale of the premises.  The premises were sold six months later and, after some wrangling between Mr Williams and the trustees, the proceeds were paid into the Scheme.

During the process that led up to the sale in June 2010, there were various discussions, seemingly at Mr Williams' instigation, around this time conducting a sale process without involving the trustees or the Regulator – which is what happened, with the trustees learning of the sale only after it had happened and so their guarantee had fallen away.  

As part of those discussions, there was explicit recognition that the Regulator could use its powers, but the expectation was that a "deal could be done" to limit liability, at least as compared to having to pay the full buy-out cost of scheme benefits, as would apply if the guarantee were triggered.  One such email from Mr Williams to a representative of Severstal included the following:

"If we go back to first principles we are trying to avoid Severstal paying the £21m, if you sell the business to me on the above basis then yes we are running a risk that the regulator will pursue us both for contributions, however he has to show that it is reasonable for him to issue a contribution notice, if Carrington are not making enough money to make such contributions then it is not reasonable for him to pursue it.

The worse [sic.] case scenario is that after a protracted period of time, Severstal has to enter into anegotiated settlement.  This I would suggest to be as low as £5million.  Given this Severstal would save a minimum of £16million, and would have earned profit from the sale of goods to Carrington throughout this period (possibly two-three years)(emphasis in the original).

Mr Williams was unable to make a success of the employer and it entered insolvent liquidation in December 2012.

The Regulator's action

The Regulator issued a warning notice against both Severstal and Mr Williams.   It claimed £17.7m from Severstal - which seems to have been calculated by taking the £21m of buy-out liabilities from around the time of the sale to Mr Williams, less the amounts paid into the Scheme following the sale of the employer's premises - and an amount of around £382,000 from Mr Williams, representing the "working capital adjustment", which was ultimately paid to him.  Both amounts were pursued on a joint and several basis.

Severstal settled the claim against it for £8.5m, but Mr Williams fought the case against him (which by then was worth only the £382,000 in respect of the working capital adjustment).   

The Determinations Panel

Unsurprisingly, the Determinations Panel decided that Mr Williams had been party to an act the main purpose or one of the main purposes of which was to prevent recovery of a section 75 debt that was, or might become, due from the employer.  This was as a result of the discussions leading up to, and execution of, the agreement for the sale by Severstal of the shares in the employer to Mr Williams on the basis that (i) no replacement guarantee or other suitable security would be offered to the pension scheme and (ii) the trustees and the Regulator would not be told.   

The same actions also meant that the "material detriment test" was satisfied, giving another ground on which a CN could be issued against Mr Williams.  

Finally, the Determinations Panel considered it reasonable in the circumstances to issue a contribution notice against Mr Williams. Understandably from the evidence, it did not seem a struggle for the Determinations Panel to reach that view and they highlighted the following points in particular: Mr Williams was 'pivotal' to the events which took place – "Without Mr Williams, the sale transaction would not have gone ahead" ; it was not, in the Panel's view, reasonable for Mr Williams to have acted in the way he did; and Mr Williams having received the £30,000 payment from Severstal.