Since 1991, there has been a requirement for an insolvency practitioner appointed to a company which operated a final salary pension scheme to investigate whether that scheme includes an independent trustee. If it did not, there was a statutory duty on the insolvency practitioner to appoint an independent trustee.
These requirements were changed by the Pensions Act 2004 with effect from 6 April 2005, by removing the insolvency practitioner’s duty to appoint an independent trustee. Instead, the Insolvency Practitioner has a new duty to inform the trustees of the scheme, the Pensions Regulator and the Board of the Pension Protection Fund (PPF) of its appointment within a period of 14 days beginning with the later of the insolvency date and the date when the insolvency practitioner becomes aware of the scheme (a “Section 120 Notice”).
There are prescribed requirements regarding the content of the information that the insolvency practitioner must provide. In particular, this includes:-
- The name, address and registration number of the pension scheme;
- The employer’s name;
- The nature of the insolvency event;
- The insolvency practitioner’s details and the date of appointment;
- Whether the information contains anything that is commercially sensitive.
On receipt of notification of the appointment of an Insolvency Practitioner, it is then up to the Regulator to decide whether an independent trustee should be appointed, and to make that appointment from a panel of independent trustees registered with it.
When can the Pensions Regulator appoint an Independent Trustee?
If a scheme enters an assessment period for the PPF, any claims the trustees have against the insolvent employer are subrogated to the PPF, which will liaise with the Insolvency Practitioner and deal with creditors’ meetings and committees.
In an assessment period, the insolvency practitioner must notify the PPF, the Pensions Regulator and the trustees of the rescue status of the scheme as soon as this is possible. In doing so, the insolvency practitioner must issue a notice confirming one of the following:
- The pension scheme has been rescued;
- The pension scheme will not be rescued; or
- That a decision cannot be made – this may happen, for example, where the insolvency proceedings are stayed or come to an end.
If a scheme is to be rescued, the insolvency practitioner must confirm either that the employer’s business has been rescued as a going concern, and the employer has not entered into an agreement with the PPF to compromise the debt owed to the scheme, or that the employer’s business has been sold and another person has assumed responsibility for the scheme liabilities.
If the scheme is not to be rescued, the insolvency practitioner must confirm either that the employer has entered into an agreement with the PPF to compromise the debt owed to the scheme, or that the employer is not continuing as a going concern, no other employer has assumed responsibility for the scheme and the insolvency practitioner is of the opinion that the scheme liabilities will not be met by another person. The scheme will continue to be assessed by the PPF (for a minimum period of 12 months) to ascertain if the PPF should assume responsibility for the scheme. During the assessment period and if the scheme enters the PPF, compensation to scheme members will be paid at PPF levels.