The Pension Protection Fund has said it does not believe there is a case of “widespread abuse” from companies whose schemes enter the lifeboat fund.

The comments are in response to an investigation by the Financial Times which found that 17 per cent of the 868 pension schemes that have entered the PPF are there because of pre-pack administration sales.

A pre-pack administration deal involves a buyer taking on a company's assets, but without liabilities such as its pension deficit. The paper claims that UK companies have unburdened themselves of £3.8bn into the PPF by using a pre-pack sale but two in three of these sales are to existing owners or directors.

The use of a pre-pack administration sales came to light following the sale of Bernard Matthews in autumn 2016 after Work and Pensions Committee chair Frank Field called for The Pensions Regulator to investigate the “dumping” of the scheme into the PPF.

The turkey manufacturer was sold to the Boparan Private Office without the pension fund. It was revealed at the time by Pensions Age that an initial offer by Ranjit Singh Boparan to purchase Bernard Matthews from Rutland Partners, which included the responsibility of the DB pension scheme, was rejected by Rutland Partners.

A report carried out after the sale by University of Essex professor Prem Sikka for the Work and Pensions Committee found that members of the Bernard Matthews pension fund are likely to receive just 1p in the pound. It has since been reported that the PPF is seeking to recover £75m from the administrators of Bernard Matthews.

The news has raised concerns as to whether companies are abusing the lifeboat fund and if there needs to be a change in the law. However, PPF head of restructuring Malcolm Weir said the PPF does not believe there is an issue of “widespread abuse”.

“In recent years we have been educating insolvency practitioners on the need to engage before any pre-pack insolvency. A pre-pack insolvency may be entirely appropriate in the circumstances but this needs to be demonstrated. The number has dropped significantly in the last few years and, while some cases have caused us concern, we do not believe there is an issue of widespread abuse of this mechanism," he said.

“We have strong controls in place to take action if a scheme comes to the PPF through a pre-pack insolvency without prior engagement or where we have concerns. In such circumstances we would alert The Pensions Regulator, who have a range of regulatory powers available to them, and can seek to protect the interests of our levy payers by appointing an independent liquidator.”

Commenting, Lincoln Pensions managing director Richard Farr said: "Pre-packs have been around for a long time and the insolvency profession has fine-tuned this important restructuring tool to achieve best practise. The key question is that of inevitable insolvency. This is what all the attention should be focused on. It is not just a one year test. It should be a common sense, short-to-medium term view, verified by independent experts."

Share Story: