Media reports yesterday reported a worrying new development for owners of businesses with a defined benefit pension scheme. Reports indicate that the UK Pensions Regulator has once again flexed its moral hazard powers but this time he has required a seller to plug the deficit of a pension scheme a year after it had sold a business with that pension scheme.
Duke Street Capital has apparently had to pay £8m into the Focus DIY pension fund after it sold the company to Cerberus Capital Management in June 2007. Duke Street was targeted, it is thought, rather than the current owner because of the way in which it refinanced the Focus business - paying itself a dividend on leveraged recapitalisation some time before the sale. It is not clear whether a view was taken in the circumstances that it was best to complete the sale of Focus DIY and address Regulator issues subsequently.
The Pensions Regulator has power look back up to 12 months to issue a financial support direction (FSD) and he can impose a contribution notice (CN) (on individuals) up to 6 years after an event.
It is not clear whether the Regulator formally used one of these powers or simply threatened to do so.
This is an important development underlining the importance of addressing pensions implications when considering material corporate actions (including a refinancing) and addressing pension issues on the sale of a business. The development reported yesterday will undoubtedly refocus attention on engaging with trustees and seeking Regulator clearance.
It also comes only months after the Government announced that the Regulator's powers will be increased with effect from April 2008 (see EPB briefing 173: Expansion of the Pensions Regulator’s powers to issue contribution notices) and our previous EPB Bulletins from 2 July, 29 April and 15 April 2008.