The UK’s Pension Protection Fund (PPF) is about to publish new guidelines to reflect their increased focus on the approval of Insolvency Practitioner’s (IPs) fees. The guidelines require IPs to provide more regular detail of accruing and anticipated costs to the PPF when they are appointed over employers where Defined Benefit (Final Salary) pension schemes are significant creditors. More specifically IPs will now be required to provide a more detailed explanation of how their proposed remuneration reflects the value provided to creditors.
The PPF is funded not only by an annual Pension Protection Levy paid by eligible pension schemes but also from the recovery of money, and other assets, from insolvent employers of schemes that they take on and returns from their own investments. Therefore the funding level of the PPF is directly affected by the quantum of recovery from the estate of insolvent employers hence the renewed scrutiny by the PPF of IP’s fees.
The PPF’s new guidance note on fees closely aligns the content and intention of the insolvency professions own guidance issued by R3- SIP9 and the main points for IPs to consider are the following:
- IPs to identify the existence of a pension scheme as early as possible and contact the PPF immediately when it becomes apparent they have an economic interest in decisions or an insolvency event is likely;
- The PPF will not be bound by any agreement made between the scheme trustees and prospective IPs;
- IPs should have the same considerations as to costs incurred before their appointment as they would post-appointment (see below).
- Post-appointment fees
- Immediate consultation with the PPF to discuss the fee basis and quantum and where applicable the production of an estimated outcome statement;
- The PPF will not approve an open-ended remuneration resolution;
- The PPF is open to accepting fee proposals that charge different rates for different areas of work;
- IPs must provide full disclosure and narrative of the work undertaken, what they have achieved including the efficiency and effectiveness of the work they have done;
- Regular progress reports should be provided with enough detail for the PPF to make the requisite judgement;
- The PPF will not approve the recovery of costs relating to any remedial work required due to the incorrect submission of a section 120 notice.
- PPF as a Secured Creditor
- Where security his held by pension scheme trustees the PPF acquires the creditor rights of the pension scheme under s137 of the Pensions Act and although the security will still remain under the control of the trustees during the assessment period they will act in alignment with advice from the PPF and all fees charged by the IPs for dealing with the security will be subject to the same scrutiny as provided for in the rest of the guidance note;
- Accordingly IPs must gain approval from the PPF before starting any strategy that relates to the security held by the trustees.
- Pre pack administrations
- IPs must involve and correspond with the PPF as early as possible when considering a pre pack otherwise should the pre pack result in the scheme entering a PPF assessment period the PPF may seek to nominate alternative liquidators and if necessary exercise the scheme’s other creditor rights.
- Creditor Committees
- Where the PPF has a majority of the unsecured interest in a company it will only support a resolution to form a creditor’s committee where the IPs have provided a full explanation in advance of the creditor’s meeting and in those situations the PPF must always be represented;
- The PPF does not consider it appropriate to propose the formation of a creditors’ committee for the sole purpose of approving IPs’ remuneration.
- PPF as a disenfranchised Creditor
- The PPF will exercise all its statutory rights if necessary in order to protect the interests of the schemes it represents and will investigate any resolutions that have been passed without the PPF having an opportunity to consider and vote and accordingly IPs should not rely on resolutions approved by pension scheme trustees where the PPF has had no involvement.
The guidance note reinforces what IPs should already be doing in relation to all key stakeholders in an insolvency. Nevertheless it is a useful and timely reminder of the increasing significance that the PPF has in many insolvencies.