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Freshfields Transactions

| 2 minutes read

The UK Corporate Insolvency and Governance Act 2020 – Pension Protection Fund back in the driving seat

We reported in our previous blog published on 26 June 2020 that the Corporate Insolvency and Governance Act 2020 (the Act) granted authority to the UK Government to extend the powers of the Pension Protection Fund (PPF) to exercise the creditor rights of trustees of defined benefit pension schemes where a company proposes a moratorium or restructuring plan.

The UK Government has now published the Pension Protection Fund (Moratorium and Arrangements and Reconstructions for Companies in Financial Difficulty) Regulations 2020 (the Regulations), which took effect on and from 7 July 2020. 

The Regulations:

  1. Provide that the PPF exercises the rights of creditors in a moratorium to vote on qualifying decision procedures to the exclusion of the trustees where:
    • creditor consent is required for the extension of the moratorium; and
    • there is a challenge to the directors’ actions during the moratorium and a creditor decision is required on such matters as the court may direct.
  2. Permit the PPF, if it so chooses, to exercise any creditor rights of the trustee in respect of a restructuring plan as if the PPF were a creditor of the company (for example, the right to participate in the creditor meeting(s) summoned in relation to the plan). The PPF may exercise such rights in addition to the exercise of those rights by the trustees. 
  3. Provide that the PPF exercises the right to vote on a restructuring plan proposal to the exclusion of the trustees.  

For both the moratorium and the restructuring plan, the PPF’s powers to exercise creditor rights apply: 

  • regardless of the fact that neither insolvency process triggers a “PPF assessment period” (which, in the case of a CVA for example, determines whether the PPF or the trustee votes on the company’s proposal); and 
  • even where the scheme is funded to more than 100 per cent. on a PPF basis, despite the fact that in those circumstances, the PPF has a more limited economic interest in the restructuring plan than the trustees whose duty is to protect scheme members.

The Act provided that the Regulations could specify: 

  • conditions that must be met before the PPF may exercise trustee rights; or 
  • the period in which such rights are exercisable. 

However, the only limitation on the PPF’s powers to exercise trustee rights that the Regulations impose is that, before exercising the rights set out in the first and third bullet points above, the PPF must consult the trustees of the scheme.

In these circumstances, we would expect the PPF to refer to its existing policies in deciding how to exercise trustee creditor rights in a restructuring scenario (see, for example, PPF Guidance Note 5 on CVAs). In particular, if a restructuring plan were to seek to compromise pension liabilities, the PPF is unlikely to vote in favour unless the proposal meets the onerous conditions in terms of mitigation for the pension scheme that the PPF requires in relation to other restructuring methods such as CVAs. As noted in our previous blogs on the Act, an alternative restructuring method may be required in conjunction with a restructuring plan in any event to ensure that PPF eligibility and access is maintained.

The Regulations are subject to the 'made affirmative procedure', which means that they take effect on and from 7 July but must be approved within 40 days by Parliament. We would expect that the Regulations will be approved by Parliament in their current form.


europe, restructuring and insolvency, pensions