The Corporate Insolvency and Governance Bill (the "Bill") was published on 20 May 2020. It amends the Insolvency Act 1986 and the Companies Act 2006. In particular, the Bill introduces a new form of "moratorium" by which struggling companies can obtain protection from creditors lasting up to 40 business days without the consent of the creditors or the court, and potentially more than a year by a combination of creditor and/or court consent. This allows eligible companies to buy some time to restructure or seek new investments without landlords, trade and other non-finance creditors being able to take legal action or enforce debt.
Further details of the moratorium introduced by the Bill are in this link to the Ashurst briefing.
What is the Bill's impact on pension schemes?
The Bill raises a number of issues for pension schemes and the Q&As below address the main issues.
Do defined benefit contributions have to be paid during a moratorium?
The Bill lists a number of debts which a company still needs to pay in the moratorium period and this includes "wages and salary arising under a contract of employment". Contributions to an occupational pension scheme are specifically included. However, what is currently unclear is whether this is limited only to ongoing pension scheme contributions and whether deficit repair contributions payable pursuant to a schedule of contributions are excluded. The better view is that they are unlikely to fall within the definition and therefore deficit repair contributions are likely to be subject to a payment holiday during the moratorium.
How about contributions to GPPs and other personal pension arrangements?
Again, it is unclear whether contributions to a GPP and/or other personal pension schemes need to be paid during a moratorium. These types of arrangement make up the bulk of the UK's pension membership; it would seem odd if contributions to such arrangements were not to be made, but they are not expressly covered by the current definition of "wages and salary arising under a contract of employment".
What is the impact of the moratorium procedure for trustees?
During a moratorium, restrictions are proposed on certain creditors, which will prevent them from issuing winding-up petitions (among other things). Trustees will not be able to issue winding-up petitions for unpaid pension scheme contributions. Trustees will also not be able to enforce fixed and floating charges.
Are trustees subject to any other restrictions?
The Bill temporarily suspends wrongful trading laws, with retrospective effect, from 1 March 2020 until one month after the Bill is enacted (unless it is extended further). This is intended to alleviate a director's immediate need to file for insolvency, by removing the risk of personal liability for wrongful trading during the period of suspension. Directors' other duties, such as the duty to take into account the interests of the company's creditors, are not suspended.
What impact will a restructuring plan have on trustees?
The Bill enables companies in financial difficulty to develop a restructuring plan, which would be voted on by classes of affected creditors and members. Once it is sanctioned by a court, the restructuring plan will bind dissenting minorities in each class and also, potentially, entire dissenting classes if certain conditions are satisfied and the court considers the cram-down of the dissenting class to be fair and reasonable. Such a plan could restrict the trustees' ability to take action against sponsoring companies. And because the restructuring plan could bind creditors, including trustees (and the Pension Protection Fund), it clearly has the potential to limit the range of options available to pension creditors in a distressed situation. However, a court will not sanction a restructuring plan unless it is fair and reasonable and since the pension scheme and its trustees will often be in a fairly unique position as a creditor, it will not usually be possible to approve a restructuring plan which unduly impacts the pension scheme as against other unsecured creditors.
What next?
The Bill completed its passage through the House of Commons on 3 June, and it is expected to move to the House of Lords on 9 June. We will update you on any significant developments which affect pension schemes.
Further information
Please contact us if you would like further information on any of the issues raised.
