A top British court ruled that the nation’s pension regulator has the power to order a company to support the pension plan of a failed subsidiary.
The UK’s Upper Tribunal has sided with The Pensions Regulator (TPR) regarding the use of its Financial Support Direction (FSD) to compel corporate parent media company ITV to financially support the Box Clever pension plan, which has 2,800 members and a deficit of £115 million ($155.4 million) The purpose of the FSD is to provide a rescue framework for pensions in deficit.
The judgment followed a two-week hearing in January, which was the first anti-avoidance case by TPR to be heard in full by the tribunal, according to the regulator. The TPR has so-called “anti-avoidance” or “moral hazard” powers that are intended to help protect pension members’ benefits; reduce the number of claims for compensation to the Pension Protection Fund (PPF), which is the UK’s pension lifeboat for collapsed companies; and reduce the PPF’s exposure if a claim is made.
The ruling “sends a clear message to companies linked with defined benefit pension schemes that we will not hesitate to use our anti-avoidance powers where we believe it is reasonable for them to provide financial support,” Mike Birch, TPR’s director of case management, said in a release. “We will pursue these cases for as long as necessary to protect pension savers and the Pension Protection Fund.”
Box Clever was formed in 2000 as a joint venture between the TV rental businesses of Granada, which merged with Carlton Communications in 2004 to form ITV, and Thorn, which is now Carmelite. The respective employees were transferred to the new company and enrolled in the Box Clever pension plan, according to TPR.
TPR opened an anti-avoidance investigation following the collapse of Box Clever, and said that prior to the collapse, ITV received “significant value” from the joint venture.
“This has been a long and complex case, where the targets have raised numerous legal challenges causing significant delays in an outcome being reached,” said Birch. “We now hope that ITV will accept the Upper Tribunal’s findings and seek to work with TPR to put in place appropriate financial support for the scheme and deliver a good outcome for members.”
The Tribunal ruled that it is reasonable for ITV to provide financial support for the pension in the circumstances of the case. ITV has 14 days to seek permission to appeal the Tribunal’s decision. If there is no appeal, TPR’s determinations panel will issue financial support directions to ITV.
“By their choice of structure for the joint venture, the shareholders extracted considerable cash from the business with no risk of recourse to their assets,” said the Tribunal. “They retained an ongoing interest in the merged business with the possibility of further value being generated if the business was successful, but without having to bear any responsibility if the business, whose strategy they continued to determine, subsequently failed.”