Pension Protection Fund (Moratorium and Arrangements and Reconstructions for Companies in Financial Difficulty) (Amendment and Revocation) Regulations 2020

Baroness Drake Excerpts

Wednesday 21st October 2020 Lords Chamber

[Baroness Drake (Lab) [V]]

My Lords, I welcome these regulations, because they give the PPF the ability to exercise creditor rights across the full range of employers in moratoriums and restructuring plans where there is a PPF-eligible DB pension scheme.

There have not yet been any cases where a moratorium has been implemented for a business with an eligible scheme, so we have no case studies to judge how these measures are working in practice, including the potential for gaming that the new system introduced under the Corporate Insolvency and Governance Act. The Government did amend the Act to give the Secretary of State powers to amend the regulations in response to the emergence of perverse behaviours, but I want to pursue an issue which I raised at the time and which was never really answered.

The Corporate Insolvency and Governance Act and these regulations sit alongside the Pension Schemes Bill, which is currently in the Commons. Clause 107 of that Bill introduces new criminal offences if the conduct of employers and other persons, and entities such as banks, trustees and advisers, has a detrimental effect on the schemes such as the avoidance of the recovery of the whole or any part of the employer’s debt. That opens up the possibility that what may be considered lawful actions under the Corporate Insolvency and Governance Act could subsequently be considered offences under the Pension Schemes Bill. If a moratorium takes place and a restructuring plan or insolvency follows, the pension scheme’s positions will be weakened relative to some other creditors because the scheme’s full Section 75 debt is not triggered, and unsecured finance debt has super-priority status, outranking the pension fund debt and outranking pension liabilities in subsequent insolvency. That finance debt includes shareholder loans, inter-company loans—including from a director or parent company—as well as arm’s-length regulated activities and bank debts. During a moratorium, those financial debts continue to be payable, but pension deficit contributions do not. Therefore there remains a real risk of novel forms of moral hazard including, as the noble Baroness, Lady Bowles of Berkhamsted, observed in this House on 23 June, when commenting on the poor behaviours that could occur,

“behaviour that is reprehensible but not, in the end, prohibited or even limited to reasonable amounts.”—[Official Report, 23/6/20; col. 138.]

A moratorium will become the point at which discussions about a restructuring deal begin, and will involve trade-offs. If the PPF or the Pensions Regulator considers either at the time or subsequently that an aim of an employer, parent company or other parties in seeking a moratorium and subsequent insolvency or restructuring plan was the avoidance of the employer’s debt, which legislation takes precedence, the Corporate Insolvency and Governance Act or the new Pension Schemes Bill? Would the regulator be able to use its enhanced powers to acquire information over and above that sent out to creditors during a moratorium? What would be the implications for any super-priority status granted or restructuring plan agreed or proposed where such a challenge by the regulator was made? Any clarity the Minister can provide will be helpful.