Pensions versus Insolvency: changes to The Pension Regulator’s powers

There has always been a tension between protecting the interests of defined benefit pension schemes and insolvency given on the one hand The Pensions Regulator (TPR) seeks to protect the interests of pension scheme members and the Pension Protection Fund and on the other, the insolvency regime seeks to protect the interests of creditors as a whole.

We published an article in July 2018 reporting on a consultation paper issued by The Department for Work and Pensions.  In that, we highlighted our concerns about proposed changes to the notifiable events framework and the impact that increasing TPR’s powers might have on the insolvency profession and the rescue of companies with defined benefit pension schemes.

The Government has now published its response to that consultation which we consider below.

To read our previous article click here.

Notification of pre-insolvency advice

Last year’s consultation paper sought views on introducing a new “notifiable event” whereby employers (those sponsoring a defined benefit pension scheme) would be required to notify TPR in circumstances where it took pre-insolvency or restructuring advice.  We reported our concerns about the effect that this might have on company rescue particularly given the ambiguity over what might constitute advice and the consequences of failing to notify.

The Government thankfully confirms in its response that:

(a) it will not be introducing a requirement to notify TPR when taking pre-insolvency or restructuring advice; and

(b) the existing notifiable event of “wrongful trading” will be removed from the list of notifiable events.

The Government recognised concerns raised by respondents to the paper (including our own) that the proposed changes might be difficult to operate in practice and might stifle legitimate business activity or in the case of insolvency, business rescue.   This confirmation is a welcome relief!

Declarations of intent

The consultation also sought views on introducing a requirement for sponsoring employers to provide a declaration of intent confirming that they had considered the implications of how a transaction (for example, a proposed sale of the business and assets) would impact on the pension scheme.  The declaration would also be required to confirm that the trustees had been consulted and set out how any detriment to the scheme would be mitigated.  It would then be shared with TPR who, if it thought appropriate, could take action.

Whilst early engagement with trustees and TPR should be encouraged, this is already something which happens in practice when corporates seek restructuring advice. 

Our concern about this proposal was the additional costs and delay this would incur (with no material benefit to the pension scheme) at a time when the business is already under pressure and a sale may need to happen quickly in order to preserve the value of the underlying business. 

The Government provided reassurance in its response that involvement of TPR will not result in time critical delay and confirms that in assessing the impact of this proposal it will consider time and costs implications.   Whilst we hope that this will include consideration of the cost and time implications when dealing with a distressed sale, it remains our view that an impact statement is unlikely to make any material difference to the effect of such a sale on the pension scheme and is therefore unnecessarily burdensome. 

It also raises further concern (at least for directors of the relevant company) that failure to comply will this requirement may give rise to the possibility of a fine of up to £1,000,000!

Earlier notification of the sale of the business or assets

The consultation paper also sought views on moving the timing of notification forward suggesting, in the case of a proposed business or assets sale, that TPR be notified when heads of terms are agreed.  

Whilst the Government will implement this proposal, it has indicated that it will work with industry to identify when that earlier point will be, recognising that notification at the point heads of terms are agreed does not work in all cases.  

In the context of a sale negotiated in an insolvency process, we were unable to see how earlier notification would result in a material benefit to TPR whereas imposing additional requirements in a distressed situation do not always assist.   We hope that the Government will take concerns on board about timing when the earlier point is agreed.  

New targets and penalties

Whilst there will be no requirement to notify when taking pre-insolvency or restructuring advice there will be a requirement to (a) notify a sale of the business or assets; and (b) provide a declaration of intent and failure to do either could result in a fine.   

This is of larger concern to sponsoring employees/directors given the new civil penalties.  

The new penalties include fines of up to £1 million; which in the case of failure to notify of a sale could be levied against the sponsoring employers and in the case of failure to provide a declaration of intent could be levied against sponsoring employees and others associated or connected (i.e directors).  Whilst directors appear to avoid fines in the context of failure to notify of a sale, this was alluded to in the consultation paper.

Whilst it is extremely unlikely that sponsoring employers/directors would receive a fine of £1million if a declaration isn’t made or sale notified in an insolvency process – this level of fine being likely reserved for what TPR refers to as “willful or reckless behaviour” – it is unclear what level of fine might be imposed. There is a big gap between £0 and £1 million!


Whilst not part of the consultation the Government confirms in its response that TPR will be given power to call any person for interview (which would include insolvency practitioners) regardless of professional obligations/confidentialities.  This comes about partly in response to the difficulties TPR encountered obtaining relevant information surrounding the collapse of BHS .  This is unlikely to be an issue for an IP and at least provides clarity on their obligations in the future.


Our initial fears, about the impact of the proposals on business rescue and culture, are somewhat relieved by the Government confirming that notification of taking pre-insolvency or restructuring advice will not become a notifiable event.  However, the earlier notification of a sale and the new requirement to produce a declaration of intent remains of some concern because it is not yet clear how these might impact on corporate rescue and restructuring.  The biggest concern being additional cost and delay where, as we noted in our initial article, there is no obvious benefit to TPR, and of course, concern for directors of corporates who could face a hefty fine if these steps are not met.

To review the Government’s full response click here.

To read our pension colleagues’ comments on the response click here.


Trade Talks: the UK’s trade relationship with its key international partners post-Brexit

Over the last 12 months Squire Patton Boggs have been involved in video interviews and roundtable meetings with experts from our global network of business leaders, to enable us to provide guidance to our clients on the economic and political issues they are likely to face in trading internationally post Brexit. The key jurisdictions that we have looked at are the USA, China, the EU, India and the Commonwealth generally.

Links to the interviews and a summary of the topics covered are below.

As Brexit uncertainty continues it is vital for businesses to understand how our key international trading partners will see the UK once we exit the EU.

For business, being able to evaluate how the UK is likely to be seen as trading partner will help them to adapt and manage their supply chain as well as manage customer expectations in order for businesses to remain competitive and relevant. Being able to adapt to globalisation and the speed of change are key factors in defining whether a business thrives or simply survives.

Country/Jurisdiction Summary
US – January 2018 Video interview with John Dickerman and Frank Samolis (partner, International Trade).
China – February 2018 Video interview with Guy Dru Drury MBE, CBI Head of China.
EU – March 2018 SPB hosted a client facing roundtable dinner, supplemented by another video interview with Sean McGuire, CBI director for Brussels.
India – April 2018 Interview with Shehla Hasan, CBI head of group – India and South Asia.

We also spoke with a number of trade experts, including Neil Clarke (sales director for convenience food producer Symington’s), Sherad Dewedi (spokesperson for the Yorkshire Asian Business Association), and Biswajit Chatterjee, partner in our India Practice.

Commonwealth/International – November 2018 Interview with Benjamin Digby, CBI director for international trade and investment to discuss the UK’s outlook on international trade and investment for 2019.



Will Bankruptcy Stay Criminal Proceedings For PG&E?

On January 29, 2019, California’s Pacific Gas and Electric, one of the nation’s largest utilities, filed for Chapter 11 bankruptcy protection.  PG&E’s bankruptcy is certain to be one of the largest and most complex restructurings in recent years and will involve state and federal regulators and a myriad number of issues, including the impact of the bankruptcy case on criminal proceedings now pending against PG&E.

In an article recently published in Bankruptcy Law360, restructuring partners Karol Denniston and Stephen Lerner examine the impact of the bankruptcy case on PG&E’s criminal proceedings, and the effect that the bankruptcy case may have on regulatory orders addressing safety policies, procedures and actions.

The Aristophil Scandal: All that glitters…

Open Book

Rastignac? Grandet? Swindler? Arsène Lupin? Ponzi scheme concerning letters and manuscripts? The adventures of Gérard X, formidable businessman, founder and manager of the Aristophil company, were abruptly interrupted in November 2014, with the search of the company premises and its property by the judicial police.

The company was put into receivership on February 16 2015, and on 4 March of the same year Gérard X was indicted for deceptive marketing practices, organised fraud, laundering, breach of trust, and misuse of corporate assets. At that point, the Aristophil saga became a problem, if not a scandal.

The vast majority of 18,000 people who invested (usually through joint ownership) in the letters and manuscripts sold by the company risked losing a large part of the investment, in what might constitute a scam amounting to a loss of 1 billion Euros.

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Retail insolvency: consumer protection, pre-payments and changes to the Sale of Goods Act

Example Buy Now ButtonWe are yet to see the true impact of Christmas trading in the retail industry although HMV is already a victim of the tough conditions for retailers. Additionally, Boots has announced a fall in sales and the launch of a “transformational costs management program” to save more than $1 billion and Next has confirmed that profits in store have fallen and although online sales are up, the uncertainty about the UK economy after Brexit makes forecasting difficult. Only one thing is clear – consumers remain at risk in the event of a retail business entering administration.

There has been much talk of late about the failing UK high street, the change in consumer habits and how retailers are having to adapt and change their traditional business models to meet the evolving needs of consumers. However, what protections do consumers actually have if they have ordered and paid for goods online or paid a deposit but the business then fails? Continue Reading

State Marijuana Laws vs. Bankruptcy: The Tension Grows

In prior posts, we examined whether state-licensed marijuana businesses, and those doing business with marijuana businesses, can seek relief under the Bankruptcy Code.  As we noted, the Office of the United States Trustee (the “UST”) has taken the position that a marijuana business cannot seek bankruptcy relief because the business itself violates the Controlled Substances Act 21, U.S.C. §§ 801, et seq. (the “CSA”), notwithstanding their state licenses. The UST has also taken the position that those leasing commercial space to a state-licensed marijuana business are themselves precluded from accessing bankruptcy courts because the CSA makes no distinction between a seller or grower of marijuana and those renting space to the seller or grower.  Now, in an opinion issued on December 14, 2018, a bankruptcy court held that businesses selling horticultural supplies to both marijuana businesses and other customers is not eligible for bankruptcy protection.

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When is a decision to declare an interim dividend a decision?

It is often common practice for small businesses to structure payments to a director (who is also a shareholder) through a combination of dividend payments and salary, in order to minimize PAYE liabilities and reduce tax.  Consequently, rather than be paid a salary, a director is “remunerated” by dividend payments.  This works when the company declaring the dividend has sufficient distributable reserves – but when it does not, those payments are unlawful and can be clawed back under s847 of the Companies Act 2006.

It is also often the case that a director is paid by monthly interim dividend payments, albeit that at the time of payment it is not yet known whether there will be sufficient distributable reserves to justify the payment. If at the end of the financial year it turns out that the company did not have sufficient distributable reserves, the payment is re-characterised as salary and PAYE will be accounted for at that point.  This payment structure can work (although the original payment to the director is illegal), but what happens where there is an intervening insolvency that occurs before the payments are reversed? Continue Reading

Third Circuit Confirms There’s No Wiggle Room With Jurisdictional Limitations

A precedential decision issued on November 28, 2018 by the U.S. Court of Appeals for the Third Circuit highlights the limits of bankruptcy judges’ authority to transfer non-core proceedings to other courts.  The Third Circuit’s opinion in In re IMMC Corp. f/k/a Immunicon Corp., et al., Case No. 18-1177, also emphasizes the importance of choosing the right forum for filing post-confirmation litigation.

The facts of the eight-year long jurisdictional dispute are procedurally complex, but are crucial to understanding the potential significance of the Third Circuit’s ruling.  In 2008, IMMC Corporation (the “Debtor”) filed a voluntary petition for relief under chapter 11 of the Bankruptcy Code in the U.S. Bankruptcy Court for the District of Delaware.  Roberto Troisio (the “Trustee”) was appointed liquidating trustee of the Debtor’s estate pursuant to the Debtor’s confirmed plan of liquidation.

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The Fifth Circuit Reminds Buyers To Beware Of Buying “Deemed Rejected” Contracts

The recent decision by the Fifth Circuit Court of Appeals in In re Provider Meds, L.L.C. is a stark reminder to chapter 7 trustees that they have an affirmative obligation to examine a debtor’s assets.  A trustee’s failure to conduct a sufficient and timely examination may deprive the estate of significant value.

The issue before the Court in Provider Meds was whether the assumption and assignment of an intellectual property license agreement (the “License Agreement”) conveyed any intellectual property rights since the Agreement had not been timely assumed by the trustee.  The facts were not in dispute.  Multiple related debtors filed chapter 11 cases, and those cases were later converted to chapter 7.  None of the debtors listed the License Agreement in their bankruptcy schedules.  The License Agreement had been executed as part of a settlement of a 2010 patent litigation in which Tech Pharmacy Services, LLC (“Tech Pharm”) had alleged that multiple defendants, including several of the debtors (pre-petition), had infringed its patent.  Under the License Agreement, all but one of the debtors obtained a non-exclusive perpetual license to use Tech Pharm’s patent.  Following conversion of their cases to chapter 7, RPD Holdings, L.L.C. (“RPD”) purchased all of the assets of three of the debtors under section 363 of the Bankruptcy Code.  The orders approving the sales provided that to the extent that any of the subject property was an executory contract, the contract was assumed by the estate and immediately assigned to RPD under section 365 of the Bankruptcy Code.

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Did Jevic Doom Future Chapter 11 Recovery Efforts By Unsecured Creditors?

Bankruptcy Book

Can a senior secured creditor, who credit bid for substantially all of a debtor’s assets, contribute non-estate property to a litigation trust for the benefit of general unsecured creditors without following the absolute priority rule?  In the recent Constellation Enterprises case, the Bankruptcy Court for the District of Delaware ruled that, as a result of the Supreme Court’s Jevic decision, it cannot and on that basis refused to approve a settlement which would have provided a significant recovery to unsecured creditors. The court’s decision resulted in a multi-million dollar windfall for the senior secured creditors with whom the creditors’ committee in that case had negotiated a favorable settlement.

In an article published in the Journal of Corporate Renewal, the official publication of the Turnaround Management Association, entitled “Did Jevic Doom Future Chapter 11 Recovery Efforts by Unsecured Creditors?,” Squire Patton Boggs Restructuring & Insolvency Group partners Norman Kinel and Nava Hazan examine Constellation Enterprises and its potential ramifications on efforts by creditors’ committees to obtain recoveries for their constituents in the chapter 11 cases of highly overleveraged companies.