The Pensions Regulator recently became involved in the current controversies attaching to pre-pack arrangements.
A company, Graphex Limited, was apparently proposing to go into administration and it is understood that it was proposed that the business and assets of that company would be sold as part of a pre-pack. Graphex Limited was the principal employer of the Graphex Limited Pension and Life Assurance Scheme (a defined benefit scheme). The Regulator was concerned that the pre-pack arrangement would mean that assets were stripped out of the principal employer and would be bought back by a newco, which would not assume the pension liability. As is often the case in pre-packs, the directors of Graphex Limited would be involved in newco and it appears that some of these directors were also trustees of the Scheme.
The Regulator has made an order to appoint an independent trustee to the Scheme with exclusive powers to ensure that the interests of the generality of the members of the Scheme are protected.
It is well known of course that one of the benefits of pre-pack arrangements is that a business can be allowed to continue without being encumbered by historic debt. Conversely, it is this very fact that gives rise to claims of foul play by creditors and it was no doubt intended by the relevant directors of Graphex Limited that the pension liability be left with the company in administration leaving the purchaser free from such liabilities. Clearly that could be prejudicial to the interests of the pension scheme, and indeed other creditors or groups of creditors.
However the Regulator has available to it a variety of powers and remedies that are not available to the general body of creditors and there is often a statutory requirement to inform the Regulator of events that might prejudice a scheme. Its powers allow it to require interested parties to pay contributions to schemes: on the other hand, they also allow it to provide advance clearance of proposed transactions.
It is clear that any party intending to become involved in a pre-pack arrangement where a relevant pension scheme is involved must have regard to the interests of the pension scheme members and must consider very closely the appropriate steps to be taken.