In our 1 July 2010 bulletin, we reported on the Pension Regulator's first ever contribution notice ("CN") for £5.089 million on a Belgian company, Michel van de Wiele (VDW), the parent company of the Bonas textile business. In a nutshell, TPR had imposed the CN because it held the opinion that VDW had put Bonas into administration under a pre-pack insolvency process to avoid pension scheme liabilities. In August 2010, VDW appealed to the Upper Tribunal and made an interlocutory application to bar TPR from pursuing the CN. On 17 January 2011, the Upper Tribunal rejected the strikeout application saying that TPR has a real, and not a simply fanciful, chance of success. The Upper Tribunal also rejected TPR's attempts, when responding to the strike-out application, to widen its pursuit to impose a CN on Bonas' managing director holding that TPR was prevented from doing so as it had already ruled this out.
Food for thought: Upper Tribunal's other observations
The Upper Tribunal also made the following observations:
- The £5 million CN demand may be unsustainable. The whole idea of a CN is to enable trustees to be compensated for the detriment suffered by the scheme as a result of the act or "deliberate failure to act" of the person on whom the CN demand is being made. The CN should not act as a penalty.
- The Upper Tribunal disagreed with VDW that "a deliberate failure to act" required more than mere inaction. It said that a "deliberate failure to act" requires that the person concerned has "perceived different possible steps and has decided not to take a step which he might, not necessarily ought, to have taken".
- Focus of the CN must be on what Bonas had been prevented from paying into the Scheme. Only in exceptional circumstances would it be reasonable to impose a CN that is more than the amount by which the act or deliberate failure to act has prejudiced the recovery of the statutory debt. The acts relied on by TPR in imposing the CN related to the decision to put Bonas into a pre-pack administration. On that basis, the most the pension scheme had been prevented from recovering, the tribunal estimated, was around £100k.
- The appropriate course for imposing a positive obligation for additional funds would have been to seek a financial support direction.
The case will now proceed to full trial, which will involve a full rehearing of the issues. The tribunal's observations in relation to CNs significantly restrict the scope of CNs. In this regard, there is a good chance that the Upper Tribunal will require the amount of the CN to be reduced.