The Pensions Regulator (TPR) has determined there are no reasonable grounds to issue a contribution notice following an investigation into how Bernard Matthews Limited’s (BML) Pension Scheme entered the Pension Protection Fund (PPF).

The investigation centred around offers of financing and subsequent involvement in BML from private equity fund Rutland Partners LLP, with the regulator considering whether these events were materially detrimental to the position of the pension scheme and whether using its powers would be reasonable.

Rutland provided BML with £25m of funding in August 2013 under an agreement that entitled it to 20 per cent per year payment in kind interest, which TPR noted was “high compared to conventional bank lending” but in line with the private equity market due to the fact that the investment was “high risk given BML’s financial position”.

The investment was approved by the BML Pension Scheme’s trustees as it was thought “preferable to allow the company an opportunity to turn around its performance in the hope that the scheme’s members would ultimately receive their accrued benefits in full”.

However, the investment and other efforts to turn the business around were scuppered by pricing issues, leading Rutland to arrange for increased banking facilities of £10m for BML in 2015, guaranteeing £5m of this itself.

TPR said this further decline in BML’s fortunes was not due to Rutland’s performance as an investor at the time as losses before tax were successfully reduced, leading the regulator to find that Rutland’s actions were not materially detrimental to the position of the scheme.

By July 2016, Rutland was seeking a buyer but ended up receiving just two credible offers, including an offer from Boparan Private Office (BPO) that excluded all the company’s liabilities, was sufficient to pay the bank with its first charge and would have involved Rutland writing off the majority of its original investment, as well as the accrued payment in kind interest in its entirety.

This offer was rejected, leading BPO to make an £87.5m offer to acquire the business and assets of BML but not its debts.

BML’s board decided that selling the business via a pre-pack insolvency was the most appropriate option at the time, taking into account the interests of all of the group’s creditors, meaning BML would enter administration and its business and assets would be immediately sold to BPO on pre-agreed terms.

Rutland made a £13.9m profit on its investment, while the pension scheme received nothing under its third ranking charge and entered an assessment period with the PPF on BML’s insolvency.

TPR said it had found no evidence to suggest that the sales process and the pre-pack were carried out inappropriately or that Rutland sought to unduly influence or control either process, noting that the private equity fund sought simply to maximise the return on its investment and did so in line with the terms agreed back in 2013 by the BML board.

Contribution notices require their targets to pay contributions to a scheme or to the PPF, with their use determined by examining whether the party in question acted in detriment to the chances of accrued scheme benefits being received by members.

TPR said: “We have concluded that there are no reasonable grounds to use our contribution notice power in this case. Our view is that Rutland’s profit was a legitimate consequence of the terms of its high-risk investment in BML, which had been negotiated and agreed on an arm’s length commercial basis with the board of BML and the scheme’s trustees.

“We have no evidence of unreasonable conduct on Rutland’s part at any stage of its association with BML and the scheme or in respect of the sales and insolvency processes.”

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