In February this year, Squire colleagues Paul Muscutt and Helen Kavanagh wrote about the Carrington Wire Defined Benefit Pension Scheme, where the UK Pensions Regulator accepted a payment of £8.5m to settle warning notices of £17.7m issued to Russian companies that had guaranteed sums due from Carrington Wire to the Scheme (“the Guarantee”).
For the previous blog and background to the Carrington Wire case please click on the link here.
The Regulator had also issued a warning notice to Richard Williams, the sole director and shareholder of Gillico Limited, a shelf company that purchased the entire Carrington Wire shareholding for £1. The sale of Carrington Wire’s shares was the trigger which allowed the Guarantee to drop away. An apparent working capital adjustment of £400,000 meant that Mr Williams personally received circa £382,000 at the time of the sale.
In April 2015, the Determinations Panel on behalf of the Regulator adjudicated on the warning notice and issued a Contribution Notice for £382,000 to Mr Williams.
On 26 May 2015 the Regulator issued its S89 report (which included the Panel’s Determination Notice) and a supporting press release.
The Determination Panel’s adjudication contained some noteworthy points with regard to the main purpose, material detriment and reasonableness statutory tests contained in S38 Pensions Act 2004 which must be satisfied to enable a Contribution Notice to be issued. The S89 report commented on the settlement reached with the Russian companies. The two taken together may flag a divergent approach.
The Panel found that as other statutory tests had been satisfied it needed only to address a limited number of points under the specific reasonableness test which it thought most relevant to this case. It found Mr Williams “pivotal” to events and concluded that his actions were not reasonable.
With regard to the amount of the Contribution Notice, the Panel found that Mr Williams received a measurable benefit in receiving a payment of £382,000 which inevitably induced his actions. In response to the assertion that, as Mr Williams could not meet a £382,000 claim, it would be unreasonable to issue a Contribution Notice in that amount because he would be forced into bankruptcy, the Panel concluded that Mr Williams had received the money and what he subsequently did with it was not something which concerned the Panel. The Panel added that to allow a Contribution Notice to be defeated because funds received by a target had been paid away would inevitably lead to a “rogue’s charter”.
Finally, in its S89 report the Regulator stated that with regard to the settlement with the Russian companies on the warning notice of £17.7m, the companies had made a number of offers before the final offer of £8.5M was accepted. Before agreeing a settlement, the Regulator was mindful that the Russian companies had no assets in the UK and any enforcement action would have to be taken via courts in Russia. The Regulator had carefully considered specialist advice on enforcement in Russia and in the light of that advice agreed to a settlement of £8.5M.
A useful case with regard to further clarity being afforded to the statutory tests. An interesting and possibly divergent approach to Mr Williams and the Russian companies. The Contribution Notice was issued to Mr Williams regardless of enforcement issues, but the Contribution Notice was not issued to the Russian companies because of enforcement issues.