TPR settled its dispute with Michael Van de Wiele (VdW) in relation to its UK pension scheme and issued a Contribution Notice (CN) for £60,000. Although this is significantly less than the £21 million originally sought and the £5.08 million decided by the Determinations Panel, TPR says it is “business as usual” for the use of its statutory anti-avoidance powers. A settlement at this level might be viewed as a defeat for TPR and an indication that CNs are not a potent weapon to deal with the avoidance of employer debts. That view would be seriously misguided. If anything, the Bonas case indicates the contrary. Read on to find out why.

What Happened in Bonas?

VdW acquired Bonas UK Ltd (Bonas), the sole participating employer of the pension scheme, in 1998 through a UK subsidiary. From acquisition to eventual liquidation, Bonas operated at a loss. On 20 October 2006, VdW finally resolved to put Bonas into administration but did not inform the pension scheme trustees of this decision. On 5 December 2006 Bonas' board reached the same decision and appointed an insolvency practitioner. Bonas' business and assets were immediately transferred to a new company under a pre-pack administration. This triggered a PPF assessment period for the pension scheme.

VdW only told the pension scheme trustees after the pre-pack had occurred. They could not participate in negotiations nor seek advance assistance from TPR. In 2010, the Determinations Panel of TPR imposed a £5 million CN on VdW. VdW objected, making a strike-out application to the Upper Tribunal.


Warren J rejected VdW’s application to strike out the CN. However, he suggested that the £5.08 million award by the Determinations Panel was excessive. Instead, the CN should compensate the pension scheme for the detriment suffered following the pre-pack sale, the pre-pack being the action which prevented the trustees from recovering an employer debt.

Warren J said a CN was limited to compensating a scheme for the detriment caused to it by a person's acts or failures: "it is not, as I see it, the purpose of section 38 to go further than that, so as to impose a penalty on the target for his behaviour".

On the facts, it seemed preferable that the CN should seek the difference between the market value of the business and the price actually paid under the pre-pack. He noted that this point would, however, need to be examined in full at trial.


Are CNs Only There to Compensate for Detriment?

TPR has taken the view that Warren J's comments on the scope of CNs are obiter dicta and limited to the facts of the Bonas case. Rejecting the judge’s view that CNs should be limited to detriment suffered, TPR takes a bullish approach: “… that is not how the Regulator will approach the sum of CN in existing and future cases, including…pre-pack administration”.

Hansard debates on CNs indicate that they are not intended to be punitive. However, they also indicate that they are not to be based on detriment to the scheme. It seems the requirement that TPR should take account of the financial circumstances of the person on whom the CN is to be imposed is the test for determining the amount of the CN. On this basis the amount of the CN could well vary according to ability to pay.

This issue is by no means settled and it is almost certain that, at some point, it will be referred to the Court of Appeal. The issue may also be colored by the ongoing litigation in the Nortel/Lehman case, where the High Court has ruled that an Financial Support Direction (FSD) is an administration expense. If this holds good in the appellate courts then in insolvency cases, such as Bonas, there may be no need to issue a CN as the pension scheme will enjoy priority to other creditors.

Has TPR's Resolve to Issue CNs or FSDs in Appropriate Cases Weakened?

TPRs approach is clearly “business as usual”, with vigorous investigations into attempts to avoid pension liabilities and close examination of insolvency events. There is plenty of evidence that this robust approach continues.

Bonas is one of a few CN/FSD cases that has been published. However, it is unclear how many warning notices are issued by TPR seeking CNs or FSDs which are settled and never publicized. It is probable that more cases are dealt with in this way than by full hearings as in Bonas. This can be judged from a TPR press release on 13 July trumpeting its success in obtaining a settlement with the employers in relation to the Great Lakes Pension Plan for a total of £60 million.

TPR's Powers in Relation to CNs are Getting Stronger

There were always bound to be test cases on CNs exploring the limitations of TPR's powers and Bonas has done that. TPR's powers are stronger from that alone as it settles some legal issues that could be a source of argument. If case law or TPR's experience indicates obvious weaknesses in the legislation then it can be amended. This has already been done in introducing the material detriment test as grounds for issuing a CN. There is every reason to suppose that further legislative changes would be made if and when they were considered necessary to ensure CNs are effective to deal with the avoidance of employer debt.