A landmark ruling has paved the way for companies to restructure without necessarily making their pension scheme ineligible for the Pension Protection Fund (PPF). Trustees in the case of L v M sought the court’s support (and that of the Pensions Regulator) for a plan to prevent the insolvency of the sponsoring employer which would result in an apportionment of the debt due to the scheme from the employers, the winding up of the scheme and would take the scheme into the PPF. The trustees feared that the proposal would prevent the scheme being eligible because of PPF rules which mean a scheme cannot enter the PPF where its trustees enter into a legally enforceable agreement to reduce the amount of the employer debt due to the scheme under section 75 of the Pensions Act 1995.

The court ruled that, although the proposed deal did amount to a legally enforceable agreement which would apportion the employer debt, it did not make the scheme ineligible for the PPF because it was reached before the debt actually became due e.g. by putting the scheme into winding up. The PPF negotiated an equity stake in the restructured company for the pension scheme, which is now in PPF assessment.

The decision is an important one, particularly for employers who are considering following a similar path in the future. However, as always the decision of the court was reached on the particular facts of the case before it, and employers and trustees should carefully consider the facts of their own scheme and employer circumstances, and should take appropriate advice, before attempting to embark on a similar exercise.