The Singer & Friedlander Limited Pension and Life Assurance Scheme (the "Scheme") first came to general notice in relation to a case arguing whether the section 75 debt can be subject to a set off due to events after the time from which the relevant figures used in the calculation arose (read our article on Disputed section 75 debt claim). The same case, and in fact the same debt, has given rise to another, very different question about the assignability of the section 75 debt.
Kaupthing, Singer and Friedlander ("KSF") was a bank that fell victim to the financial events of 2008, and entered administration in that year. It was the employer of the Scheme and, as such, the administration triggered the section 75 debt in relation to the Scheme, due as an unsecured debt from KSF. The administration appears to have given rise to a surprisingly high return to unsecured creditors and, as is not uncommon for insolvencies, a market developed for the acquisition of debts of unsecured creditors.
The acquisition of debts at the time of an insolvency has become a significant market over recent years. For example, if the administrator has announced that it expects to provide a return of 50 pence in the pound (i.e. a 50% recovery for an unsecured creditor), a third party who believes that the return will in fact be 70 pence in the pound may offer to buy the debt from a creditor at 60% of its cover value, giving the creditor an immediate return and certainty, whilst having the opportunity to make a profit if its belief turns out to be correct. The creditor is, effectively, buying certainty in return for losing the possible upside of a higher return, and effectively hedging against a lower one.
The question arose as to whether the trustees, as the holder of an unsecured debt in the form of the section 75 amount, were able to effectively assign this debt to another party. The case did not involve a particular debt, but instead a question as to whether this was possible, allowing the trustees, should they obtain advice that such an assignment was in their interest, to so assign.
In general, a debt can be assigned by the creditor (but not the debtor) without the consent of any other party. However, the issue here is whether a section 75 debt is a "normal" debt of this type. Previously, the court had held that a section 75 debt was a debt to be treated like others, in the case of Bradstock Group Pension Scheme Trustee Limited v Bradstock Group Plc and others, where it was agreed that a section 75 debt could be compromised, i.e., given up for a payment in part. It would seem reasonable that, if a debt can be compromised, it can also be assigned.
The Bradstock case, however, took place in 2002, before section 75 of the Pensions Act 1995 was amended by the Pensions Act 2004 and before provisions such as the Pension Regulator's powers to issue contribution notices and financial support directions. Had those changes affected the Bradstock analysis, and did this mean that section 75 debts were no longer to be seen as normal debts that could be assigned as any other might?
The court decided that the analysis was not affected. Taking note of the Storm Funding decision (read our article on Box Clever and Storm Funding decisions show scope of the Regulator's financial support direction powers) which did not relate the Regulator's powers particularly to the level of section 75 debts, and more generally the fact that the basic provisions of section 75 are largely unchanged, the court held that the Bradstock-type analysis was correct and that section 75 debts could be assigned.
Furthermore, the court was comfortable that, whereas compromises of debts as permitted in the Bradstock case do with certain exceptions make a pension scheme ineligible for the Pension Protection Fund under regulation 2(2) of the Pension Protection Fund (Entry Rules) Regulations 2005, that rule does not extend to assignment of debts even though, in practical terms, an assignment of a section 75 debt has a similar effect on the scheme's creditors as a compromise. This removes the largest disincentive for assigning a section 75 debt.
In practice, the decision is obviously of great importance to the Scheme, which can now choose to assign its section 75 debt. However, it is probably of limited specific application to most pension schemes. Outside insolvency, or threatened insolvency, there are unlikely to be assignments of debts that trustees would be advised to accept. However, this reassertion that a section 75 debt is to be treated as a normal unsecured debt, rather than a creature of statute that has some special status, is important for trustees to remember whenever the liability should arise.