On 9 February 2011, sandwich maker, Uniq Plc, announced that it had agreed a deal with TPR and the Pension Protection Fund (PPF) for its pension scheme. Uniq and the scheme trustees have been trying to find a solution for the ailing pension scheme, which has a buy-out deficit exceeding £400 million, since 2009. Initial proposals, which TPR rejected, had included a package of proposals that would have eliminated the deficit over some 50 years.
A closer look at the deal
The main features of the deal (which will be implemented by means of a regulated apportionment arrangement and a scheme of arrangement) are:
- Transferring of the pension scheme to a new employer which will then be placed into administration (an “insolvency event” under regulation 5(1)(a) of The Pension Protection Fund (Entry Rules) Regulations 2005 (SI 2005/ 590), allowing the scheme to enter into a PPF assessment period and be considered for PPF compensation).
- The scheme to be given £14 million and a 90% shareholding in the company in satisfaction of which the scheme trustees will give up their claim on the company.
- During the assessment period, PPF level of benefits will be paid - when the scheme exits the assessment period, it will either fall into the PPF (in which case members will receive PPF benefits) or buy out what it can afford with an insurer.
Benefit for Uniq, PPF, TPR but little for members
From the company's point of view, the main operating companies avoid insolvency (only the newco enters insolvency) and workers' jobs may be better protected. Shareholders will see their stake substantially diluted but the diluted value perhaps reflects more accurately the true, current value of their shareholdings. From TPR and the PPF's point of view, the risk of the deficit increasing during the recovery period, followed by a later company insolvency, is curtailed. We consider that the advantages to members may not be significant for the following reasons:
- Had the scheme continued, deferred members would have been paid full benefits whereas under the PPF, deferred members will receive the (lower) PPF level of benefits.
- Members can benefit from the company's growth but only until the end of the PPF assessment period when the value of Uniq's stake will be calculated for the purposes of assessing total scheme assets, but given the company's current financial difficulties, there is unlikely to be any substantial growth during this time. Any future growth will benefit the PPF or the insurer. It is unfortunate that a way could not be found to allow members (rather than the PPF or an insurer) to benefit from potential future company growth in the longer term.
Members may, however, take some comfort from the certainty that the deal provides. The deal is also interesting in that shareholders can keep 10% of the company. In previous deals, the PPF has normally required that shareholders receive nothing, reflecting insolvency priorities.