Following the submission of this article, pressure from the pensions industry has led to significant amendments by the Government to the Bill which may ease some of the concerns raised in this article.
This Bill was introduced into Parliament in late May and passed its House of Commons’ stages on 3 June. At the time of writing it is before the House of Lords and is likely to be passed by the time this edition of Compass is published.
The purpose of the Bill is to provide businesses with extra flexibility and breathing space so that they can continue trading during this difficult time.
The aim is for UK companies and other similar entities avoid unnecessary insolvency during this period of economic uncertainty.
The Bill’s principal features are:
Many of these features will be welcome to many firms and some will be totally uncontroversial.
However, there is concern within the pensions industry that the greater flexibility being proposed for the insolvency regime could be prejudicial to the funding of defined benefit (DB) pension schemes and place greater strain on the finances of the Pension Protection Fund.
Essentially the proposals have been described as giving a dramatic enhancement in the position of 'lender' creditors to an insolvent company compared to the position of its other 'non-lender' unsecured creditors. This enhancement would not just apply to bank lenders, but potentially to any lender to the distressed company, including shareholders and other group companies. The result is that, on a restructuring or insolvency, other unsecured creditors, including any DB pension schemes, could suffer materially worse recoveries.
Therefore, a number of representations are being made by industry bodies to Ministers, civil servants and parliamentarians. The Bill is expected to complete its House of Lords’ stages on Tuesday 23 June, with enactment likely once any amendments have been agreed between the two Houses of Parliament towards the end of that week.
The Pensions and Lifetime Savings Association has gone so far as to suggest the following adjustments to the Bill should be made before it is passed:
Our comment
This is a fast-developing matter and clients with a concern or interest in this matter should check with their usual Capita contact once the legislation is finally passed.