The Court of Appeal has rejected ITV’s appeal against the financial support direction (FSD) issued by The Pensions Regulator (TPR) in the long-running Box Clever dispute. This means that ITV must now submit its financial proposals for supporting the Box Clever scheme which has a deficit of over £115 million.
This case results from the collapse of Box Clever, a joint venture between ITV and Carmelite set up in 2000. Employees from both companies had been transferred to Box Clever and enrolled in its defined benefit scheme, which promised the same benefits as their former schemes. Prior to the collapse of the joint venture in 2003 and the appointment of administrative receivers, ITV extracted significant value from Box Clever and the scheme was left with a large deficit. This resulted in an anti-avoidance investigation by TPR, which subsequently issued an FSD against five ITV group companies in 2011.
ITV challenged the FSD on the basis that it did not have sufficient control over the Box Clever scheme and because the power TPR was seeking to use, and even TPR itself, did not exist when Box Clever was established or collapsed. Both the Upper Tribunal and now the Court of Appeal have ruled that the appointment of administrative receivers did not break the chain of control between ITV and Box Clever, and that it was reasonable for TPR to issue the FSD to ITV. The Court of Appeal also confirmed that TPR could take into account events which occurred prior to the relevant legislation coming into force, otherwise it would be unable to fulfil its role of providing a rescue framework for pension schemes in deficit. Permission to appeal to the Supreme Court was refused.
ITV must now submit proposals to fund the Box Clever scheme, for example, by making a lump sum cash payment or assuming responsibility for the employer’s liabilities. If TPR considers that the proposals are reasonable in the circumstances, it will issue a notice approving the arrangements. Relevant factors may include the trustees’ decision to delay closing the scheme to future accrual, and to postpone winding up. The extent to which the other joint venture partner, Carmelite, will be required to support the deficit is unclear.
Although the Court of Appeal has clarified that FSDs can be based on events going back before the FSD legislation came into force, given the passage of time this is unlikely to be a relevant factor in most cases. The decision also confirms that the courts will interpret the relevant legislation purposively in order to ensure that TPR can fulfil its functions to protect scheme members where schemes are significantly underfunded. In February 2019, the Government published its response to a consultation on proposals to strengthen the FSD power, confirming that it intends to extend the scope of FSDs and introduce a new civil penalty of up to £1 million for failure to comply with an FSD.