The Pensions Regulator’s (TPR) decision to issue a £5million Contribution Notice (CN) against the parent company of textile machinery business Bonas - the first issued against a European company – may not be enforceable, according to some UK lawyers.

Belgium-based weaving machine maker Michel Van De Wiele (VDW) has been ordered to make a £5million contribution in relation to the Bonas Group Pension Scheme to make good a gap in the scheme it claimed had been liquidated, in an effort to avoid maintaining the fund.

Under a contribution notice, a person can be made personally liable for a pension scheme’s underfunding if they have been a party to an act or omission designed to avoid a scheme’s liabilities.

The contribution notice was issued as TPR found that the parent company had retained that business while avoiding the attaching pension liability by placing the sponsor into a pre-pack insolvency. It also failed to negotiate with TPR and the scheme trustees.

“This is the first attempt by the Pensions Regulator to issue a contribution notice in Europe, and it will therefore be interesting to see how it will be able to enforce it,” explained Rosalind Connor, a pensions partner at Jones Day. “This would generally be by getting judgement in the trustees’ favour in the UK courts, then trying to enforce that debt in Belgium. The question is whether the Belgian courts will see this as a private debt of the trustees, which is enforceable under the Brussels Regulation requiring one court to enforce the private debt of an individual of another European jurisdiction, or as the action of a government body, which is not so easily enforced.”

Robin Simmons, partner at Sacker & Partners LLP, added that TPR’s decision to exercise its anti-avoidance powers for the second time, since the Sea Containers scheme in 2007, is a warning shot to the pre-pack administrations that we have seen in recent times.

“First and foremost is the surprise that the determination takes a very public trawl through correspondence between the parties (and their advisers), including drawing conclusions from how memos and reports changed between drafts and final versions.

“To add to that, The Contribution Notice was issued against VDW despite it having for many years supported its UK subsidiary financially. In general, it’s fair to say that most in the industry would have expected this to result in the Panel failing to jump the hurdle that it must be ‘reasonable’ to impose the liability. But not so – the Panel concluded that it was ‘plainly reasonable’ to use the Contribution Notice.”

There is also a lesson here for TPR, said Simmons. “It raised an allegation late in the day that VDW had sold Bonas at an undervalue. The Panel concluded that it would be a ‘breach of natural justice#’ to allow that allegation to proceed, as it was raised at such a late stage in the proceedings.

“This may all be the beginnings of TPR baring more of its regulatory teeth. And employers would be foolish to ignore the messages that this determination sounds out.”

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