The Pensions Regulator (TPR) has announced that it has withdrawn moral hazard proceedings against Chemtura Manufacturing UK Limited and its US parent, Chemtura Corporation. This follows an agreement being reached by Chemtura with the trustees of the Great Lakes UK Limited Pension Plan (the Plan) over its funding package.

In June 2009, the trustees of the Plan - sponsored by the solvent CMUK - approached TPR over concerns relating to the financial position of the Plan. Chemtura Corporation and a number of other entities within the group had recently filed for Chapter 11 bankruptcy protection in the US. The Plan’s deficit, calculated on a buy-out basis, was an estimated £95 million. TPR began investigating whether or not it was appropriate to issue a financial support direction (FSD) under section 43 of the Pensions Act 2004.

In November 2010, the parties agreed, as part of the Chapter 11 proceedings, to a ‘stipulation’ (see link) allowing contribution and financial support claims to be ‘passed through’ the Chapter 11 bankruptcy. Subsequently, in December 2010, TPR issued CMUK and various Chemtura companies with a warning notice setting out its intention to seek an FSD from the Determinations Panel’s (DP).

Relevant parties, including the target companies and the trustees were invited to make representations in relation to the facts set out in the warning notice. The matter was due to be heard by the DP in June 2011.

However, in the course of ongoing negotiations between the target companies and the trustees of the Plan, a funding package was agreed, to the satisfaction of TPR, in May 2011. Under the agreement:

  • CMUK will make cash contributions of £60 million over 3 years, starting with an initial contribution of £30 million;
  • CMUK will also provide contributions for any possible additional liabilities connected with equalisation; and
  • Entities in the Chemtura Group (including Chemtura Corporation) have entered into guarantee and security agreements to protect the Plan against any further liabilities it may incur.

In its report, TPR has stated that it will no longer pursue the matter as it is satisfied that the funding package ‘was broadly equivalent to what might have been achieved if an FSD had been issued’.

Please click on the following link to view TPR’s report online.