An interesting exchange with the Pension Protection Fund (PPF) has highlighted that the provisions of the Pensions Act 2004 are not entirely compatible with the Insolvency Act provisions relating to section 98 meetings.
In short, section 137 of the Pensions Act provides that when an eligible pension scheme enters into an assessment period the PPF takes over the powers of the scheme trustees in relation to any debt due to the pension scheme by the company. Under section 132 a pension scheme enters into an assessment period when a qualifying insolvency event takes place. Section 121 then defines a qualifying insolvency event, and that definition includes where: a nominee is appointed in respect of a CVA; the company enters into Administration; a winding up order is made; a meeting of creditors is held under section 95 to convert from MVL to CVL; and where a winding up resolution is passed without a Declaration of Solvency having been made, i.e. a CVL.
That’s all very straight forward then. You are appointed office holder and thereafter you deal with the PPF, having given them notice of your appointment under section 120 of the Pensions Act, with the PPF then voting at meetings of creditors in respect of any pension shortfall. While the Pensions Act provisions certainly work smoothly with the Insolvency Act provisions in CVAs, Administrations and Compulsory Liquidations, the definition of qualifying insolvency event used does create a problem in CVLs at section 98 meetings.
So, you assist the Board to convene meetings of members and creditors in a CVL. The members pass a winding up resolution and that triggers the assessment period, which means that from that time the powers of the trustees in respect of the Pension Scheme cease and are assumed by the PPF. The section 98 meeting is then held immediately afterwards, but if the scheme trustees have lodged a proof and proxy then you cannot rely on them as by the time the meeting takes place the trustees no longer have the power to act and hence cannot prove or vote at the meeting of creditors. The PPF cannot vote, however, as they will not have lodged a valid proof or proxy given that the time for submission of proxies has passed and whilst the chairman has discretion to admit late proofs there is no discretion to admit late proxies. As a result there will be no valid vote at the section 98 meeting in respect of any pension scheme shortfall, although it would, of course, be open to the chairman to adjourn the meeting.
As a result of that incompatibility of the Pensions Act and Insolvency Act provisions, I think that where your discussions with the Board identify the existence of a Pension Scheme with a shortfall, then it would be prudent to enter into discussions with the PPF at that stage and to try and get them on board as it is likely that they will at least be a significant creditor in the liquidation, if not the largest. There are then at least two ways that you can get around the problem highlighted above other than by just getting the chairman to adjourn the section 98 meeting. First, you could give the PPF notice of the section 98 meeting on the basis that they are a contingent creditor, the contingency in this case being that the winding up resolution is passed. They can then lodge a proof and proxy which the chairman can then admit in the normal way. Secondly, you could deal with the case as a Centrebind and then give the PPF notice of the meeting of creditors once the winding up resolution has been passed. There are not necessarily any assets at risk or perishable goods to deal with, but I do not think that you would be criticised by a monitor for taking such steps to resolve the practical problem of the incompatibility of the legislation, particularly given that such cases are likely to be extremely rare when dealing with the small and medium sized insolvencies that our clients’ generally deal with.
But what about situations where you don’t actually become aware of a pension shortfall until you have lodged your section 120 notice post appointment and have been contacted by the PPF? The first point to make is that the incompatibility between the legislation reinforces the need to get the directors to make full disclosure about any pension schemes and their financial position pre-appointment, and also for you to make your own enquiries by reviewing the company’s accounts and checking with the company’s accountants so that you are entering into the process with open eyes. However, it is not unknown for pension schemes to come out of the woodwork, and in those cases you could find yourself in dialogue with the PPF
