We reported in our previous blog published on 15 June 2020 ('The Corporate Insolvency and Governance Bill – a pensions perspective') that a number of pensions concerns had been raised about the Corporate Insolvency and Governance Bill (the Bill). As a result, the Bill was subject to significant amendment and debate from a pensions perspective in the House of Lords.
The Bill returned to the House of Commons on 25 June 2020 where the Commons accepted the amendments passed by the Lords. The Bill received Royal Assent and become law the day after, on 26 June 2020, as the Corporate Insolvency and Governance Act 2020.
We have set out below:
- a summary of the debate on the Bill in committee in the House of Lords and in the Commons; and
- the pensions-related amendments which were made to the Bill in the Lords and which were subsequently accepted in the Commons.
Key points made in debate
The key concerns raised in debate were that the Bill as originally drafted would have weakened the position of defined-benefit pension schemes and the Pension Protection Fund (PPF) in a number of ways:
- by granting “super-priority” status for unsecured banking and finance debt if a moratorium terminates and the company enters into an insolvency process such as administration or liquidation within 12 weeks of the moratorium terminating, the Bill would have introduced material detriment to the level of recoveries that the PPF, acting as creditor for a defined benefit pension scheme, can achieve through insolvency proceedings;
- finance debts would have received preferential treatment over pension scheme liabilities by continuing to be payable during a moratorium; and
- neither the moratorium nor the restructuring plan was an 'insolvency event' which may trigger a 'PPF assessment period'. The PPF would therefore not exercise the vote of the pension scheme trustee on a restructuring plan proposal or have rights as a creditor in relation to either insolvency process.
Concern was also raised that there was a risk that the restructuring plan could lead to the 'systemic dumping' by underperforming companies of their defined-benefit pension schemes. It was also argued that the Bill could undermine the 'carefully constructed framework' set out in the Pensions Act 2004, which sought to increase protections for the interests of pension schemes and the PPF where the scheme’s sponsoring employer is in financial distress.
A direct link was also drawn between the Bill and the Pension Schemes Bill, which was introduced into Parliament in January 2020 (see our previous briefing here). It was indicated that if an unsatisfactory outcome with respect to pensions was reached under the Bill, amendments could be proposed in relation to the Pension Schemes Bill to ensure that the detrimental impact of the Bill on pension schemes was addressed.
The third reading of the Bill in the Lords occurred on 23 June 2020 and the following Government-sponsored amendments were passed. Those amendments were also passed in the Commons and so were incorporated into the Act:
- Accelerated financial debt will no longer be a pre-moratorium debt which has super priority over the pension scheme’s claims. This alleviates the significant concern raised in relation to financial debt having priority over the pension scheme claims (which would usually rank alongside financial debt in the order of priority). However, it is still the case that financial debt will need to be paid during the moratorium whereas pension debt (i.e. deficit repair contributions, s.75 debts and moral hazard liability imposed by the UK Pensions Regulator), in our view, would not be payable during the moratorium.
- The PPF/the UK Pensions Regulator will be provided with information rights in respect of the moratorium (for example, they will be informed once a moratorium comes into force or is extended). In the case of notifications to the UK Pensions Regulator, the information obligation arises in respect of any company which is or has been an employer in respect of a defined-benefit pension scheme.
- The PPF will be given the same rights to challenge the monitor or the company directors as pension scheme trustees have under the Bill (for example, creditors have the right under the Bill to challenge the monitor’s actions on the ground that an act, omission or decision of the monitor during the moratorium unfairly harmed the interests of the applicant). The Bill also grants power for the UK Government, via statutory instruments, to further extend the PPF’s powers to exercise the trustee’s creditor rights in relation to the moratorium.
- The PPF/the UK Pensions Regulator have been given rights to be provided with the same notices and documents as are sent to other creditors in relation to the restructuring plan.
- The Bill also grants power for the UK Government, via statutory instruments, to further extend the PPF’s rights to exercise any trustee creditor rights in relation to the restructuring plan. These rights could theoretically include attending the creditors’ meeting and voting on the restructuring plan. The statutory instrument may specify conditions that must be met before the PPF may exercise such rights or specify the period in which such rights are exercisable.
These pensions-related amendments to the Act provide additional protection for defined-benefit pension schemes. The full impact of these amendments will not be known until the UK Government provides further detail on the content of the statutory instruments expanding the PPF’s powers to exercise the trustee’s creditor rights in relation to the moratorium and the restructuring plan. As ever, the devil will be in the detail. However, the timetable for the UK Government to publish the statutory instruments is not yet known.