Insolvency practitioners (‘IP’s) tasked with dealing with an often failing business for the purposes of protecting creditors’ interests face a number of issues. The Regulator has sought to provide clarity in two particular areas that IPs come across in their work by issuing notes (the ‘Notes’) on these issues (September 2015).
The first issue is in relation to the Regulator’s statutory powers (under s23 of the Pensions Act 1995) to appoint an independent trustee to an occupational pension scheme where that scheme’s employer has entered into insolvency. The Regulator makes the point that such powers are discretionary – i.e. it does not have to exercise that power and whether or not it does so will depend on the circumstances of the scheme – e.g. is the employer also the trustee of the scheme or has the current trustee indicated that it is unable or unwilling to carry on acting as such. If the Regulator does appoint a replacement trustee it has confirmed it would make its selection from its trustee register.
However, the Regulator suggests that the IP may wish to consider
- acting as trustee of the pension scheme itself (on behalf of an insolvent employer where the employer was a trustee, although this raises the potential for conflicts of interest) or
- exercising any employer power to appoint a new trustee.
The Regulator points out that there could be advantages for the IP, the scheme’s members and the employers’ creditors in the IP taking either of these approaches because
- the IP has greater control of the process generally;
- any scheme issues may be resolved more quickly which could affect the progress of the employer insolvency process; and
- it may provide greater certainty about scheme costs.
IP appointing trustees
The Regulator provides some points that it considers IP should take into account when appointing a trustee, which are that the candidate should:
- be able and willing to act;
- be ‘independent’ to the extent that he/she does not have any connection with the scheme, the employer or the IP;
- be capable of discharging trustee duties; and
- charge professional fees which are reasonable (if it charges them at all). If fees are charged the IP should investigate a fixed fee arrangement.
There is also a steer as regards schemes which are or are likely to be subject to a pension protection fund (‘PPF’) assessment period or to qualify for the Financial Assistance Scheme (‘FAS’). In this case, the Regulator suggests that the IP should consider the proposed trustee’s experience and ability to deal with PPF/FAS issues, and it refers again to its register of trustees and also that the IP may wish to have regard to the PPF’s views (and its Trustee Advisory Panel, which consists of trustees who the PPF considers to have relevant experience and skills on PPF/FAS matters).
IP acting as a trustee
The Regulator suggests that in most cases an IP would be capable of performing the employer’s functions as trustee of the pension scheme but that there might be circumstances in which that would not be appropriate or practical. For example, there is a conflict between the IP and trustee functions (e.g. there is a dispute about an employer liability to the scheme or a large statutory debt under s75 Pensions Act 1995) or it may be that the IP would be required to carry out extensive and complex tasks in relation to the pension scheme for which it would lack sufficient time or expertise (e.g. if there is a large piece of litigation involved). In practice these impediments may be more common than the Regulator anticipates; IPs’ training and experience will typically reflect their role to protect the interests of creditors, but this in many circumstances may not align with providing the skills required to perform the duties of a pension scheme trustee who is subject to strict fiduciary duties and whose role is to manage the pension scheme and protect the interests of its beneficiaries which may sit in conflict with the interests of (other) creditors.
S22 of the Pensions Act 1995 requires, amongst other things, an IP to notify the Regulator if he/she begins to act in relation to an employer of an occupational pension scheme. S120 of the Pensions Act 2004 requires an IP to notify the Regulator where an insolvency event occurs in respect of an employer in relation to an occupational pension scheme. The Regulator recognises that some events could trigger both notification obligations – indeed it would seem that some IPs have regarded the obligation in s22 to be overridden by that in s120, meaning that only one notification needs to be made in the event of the latter.
However, the Regulator has confirmed its view that these notification obligations are ‘distinct and separate’ and that where these obligations both apply they should both be complied with – i.e. with two notifications where appropriate. It also recommends that if an IP is unclear about when these obligations apply, they should take legal advice.