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IPE special report May 2018

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UK schemes able to expedite wind-up process after High Court ruling

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UK pension funds will be able to accelerate the process of winding up in the wake of sponsor insolvencies after a court allowed a scheme to sell its section 75 (s75) debt on secondary markets.

The ruling saw the UK’s High Court of Justice rule in favour of the trustees of the UK pension scheme for Icelandic bank Kaupthing, Singer and Friedlander (KSF).

KSF collapsed in 2008, entering administration and leaving its UK pension scheme without a sponsor.

The scheme underwent assessment by the UK’s Pension Protection Fund (PPF), but was deemed sufficiently funded to purchase PPF-level benefits from the bulk annuity insurance market.

It was owed a s75 debt of around £74m (€93m) from the bank’s administrators, but, with the bank’s winding-up process expected to take until 2018, trustees requested permission to sell its s75 debt on the secondary market.

An s75 debt relates to the outstanding deficit of a scheme when a sponsoring company ceases to exist or sponsor the fund.

In a ruling by Mr Justice Birss, the court said, given the wording in the Pensions Act 1995, which created the s75 debt concept, this debt was assignable, and trustees could seek a third-party buyer on the secondary market.

The scheme has now found an undisclosed purchaser that will seek repayments from KSF’s administrators, allowing the scheme to wind up.

Acting of behalf of the trustees, Pinsent Masons partner Isabel Nurse-Marsh said the impact of the ruling could be wider felt.

“This development opens the door for those who specialise in the recovery of distressed securities to create a market for the purchase of debts from other schemes where the employer has gone [insolvent],” she said.

“It is good news for members of pension schemes.”

Sole trustee to the scheme, Bruce McNess of BESTrustee, said members’ interests were at the heart of the case.

“As a result, we have been able to conclude a sale on very satisfactory terms,” he said.

“This enables us to complete the winding-up of the scheme without further delay and to distribute assets to improve the level of pensions being paid to members as soon as possible.”

Birss also acknowledged the trustee was not asking the court to ratify a sale price or method but merely seeking permission to assign debt as part of trustees’ powers.

Nurse-Marsh said the ruling was not simple given the judge’s concerns over the potential impact on KSF’s other creditors.

Complications also arose from the Pensions Act 2004, which created powers for The Pensions Regulator (TPR) and the PPF, and the regulator’s ability to distribute contribution notices and financial support directions in cases of employer insolvencies.

The judge ruled the Pensions Acts of 1995 and 2004 were entirely distinct regimes and therefore did not have an impact on the case.

However, Birss said the relationship between the 1995 and 2004 acts was complex, and that arrangements governing the relationship between the two does give rise to potential anomalies.

A spokesperson at TRP said: “We are studying the judgement for any implications as to our understanding of how the regulatory framework operates.”

In 2013, the pension fund also won a case against KSF’s administrators, reclaiming £2m of funds deposited with the bank days before its collapse.

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