The UK’s Court of Appeal has upheld a lower court ruling that said The Pension Regulator (TPR) had a legal right to use its powers to compel media company ITV to fund the pension plan of a former joint venture company.
“We are calling on ITV to fund the Box Clever pension scheme,” said TPR in a Tweet in response to the ruling. “The Court of Appeal has dismissed ITV’s challenge to a decision by the Upper Tribunal last year, namely that a FSD should be issued to ITV in relation to the scheme.”
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. The pension plan has approximately 2,800 members and a deficit of £115 million ($146 million), according to the Financial Times.
In 2011, TPR’s Determinations Panel decided it was reasonable to issue a financial support direction (FSD) to ITV. An FSD requires its target to propose how it will financially support a pension plan. For example, the company could assume responsibility for the employer’s liabilities to the plan or make a lump-sum cash payment into it. If TPR considers that the proposal is reasonable it will issue a notice approving the arrangements.
But ITV did not agree and challenged the FSD before it was issued. And in May 2018, the UK’s Upper Tribunal ruled, in the first anti-avoidance case by TPR to be heard in full by the tribunal, that the regulator had a legal right to issue the FSD to ITV. The Tribunal said it is reasonable for ITV to provide financial support for the pension in the circumstances of the case.
“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 in its ruling. “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.”
But because both the joint venture and the pension plan were established before the FSD legislation came into force in 2005, lawyers for ITV and the other targets of TPR’s FSDs argued that the FSD legislation should not apply to events that occurred before they were established.
However, the Court of Appeal shot down this argument, saying that “it is unlikely that Parliament intended … to limit the scope of the power to issue an FSD to future circumstances rather than to give it a wide and immediate effect,” and added that “a target who is dissatisfied with the regulator’s decision on reasonableness also has the right to refer the matter for reconsideration by an independent tribunal.”
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