PPF publishes Insolvency Act interim guidance

The Pension Protection Fund (PPF) has published interim guidance on the Corporate Insolvency and Governance Act 2020 around the newly-introduced concepts of moratorium and financial difficulty mitigation arrangements.

Under the act, a moratorium can be initiated by the directors of a company that, among other things, suspends payments of most historic debts and prevents action being taken by the creditors, including pension schemes, to recover sums due for 20 days.

The PPF said it expects company directors to “fully engage” with scheme trustees, the PPF and The Pensions Regulator (TPR), who are entitled to receive notice of the moratorium.

It also expects to be provided with all the relevant information necessary to permit the proper management of the pension scheme by the trustees, including an understanding of the ongoing covenant, existing funding arrangements, and the PPF exposure to the PPF deficit and drift.

Trustees must also ensure that they have the correct level of expertise on their board and have properly qualified professional advisers to address restructuring situations, the PPF said, which should be addressed no later than when the potential need for a moratorium becomes apparent.

The act also introduces the concept of a compromise or arrangement between a company and it creditors, such as a pension scheme.

The arrangement is formed to try and eliminate, reduce, prevent or mitigate the impact of any financial difficulties the company is facing.

Again the PPF noted that it expected companies to engage with and notify the PPF, TPR and pension trustees on the proposals for a recovery plan, and for the lifeboat to be provided with the same information as with the moratorium.

The interim guidance continued: “Regulations 3(2) and (3) of the regulations provide for the PPF to exercise certain rights under part 26A CA06 as though the PPF were a creditor, and for the PPF to exercise those rights in addition to the pension scheme trustees.

“However, regulation 3(4) specifically provides for the PPF to exercise, to the exclusion of the trustees, the creditor rights of the pension scheme trustees in respect of voting in meetings summoned under section 901C (1) CA06. This means that any vote lodged by the scheme trustees would be invalid.”

The regulations also require the PPF to consult with the trustees before exercising the voting rights.

However, trustees may require additional time to understand what is being asked and company directors must factor into their time planning the need for this consultation including, where appropriate, the ability for the trustees to obtain relevant advice from their professional advisers.

Again, trustees must ensure that they have the correct level of expertise on their board and have properly qualified professional advisers to address restructuring situations, which should be addressed no later than the need for the potential restructuring becoming apparent.

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