Executive Summary
Denis and the Menace: Contribution Notices in the
Desmond & Sons Ltd Pension & Life Assurance Scheme
- The Trustees requested the Upper Tribunal of the Pensions Regulator ("tPR") to issue a further Contribution Notice ("CN") against Mrs Annick Desmond, a third ex-shareholder in Desmond & Sons Ltd (the "Company"), in addition to two CNs already issued against two other shareholders. This was struck down.
- However, the Tribunal refused to strike out a new application by the trustees and tPR to increase the quantum of the CNs above £1m. The ruling did not go so far as to increase the quantum to the full buyout basis (est. £10.9m-£17m) with the precise level of increase to be determined at the full hearing some time in the near future.
- The case has been subject to a confidentiality clause shrouding the case in secrecy especially as regards the CN quantum until a recent decision to publish the case at the beginning of March.
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Background Facts
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The Company was a long established family company involved in textiles manufacturing in Northern Ireland; its sole customer being Marks & Spencer ("M&S"). M&S severed their direct business relationship with the Company in Feb 2004 preferring to trade with the Company's joint venture ("JV") abroad.
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A NEWCO was formed as holding company of the JV and foreign interests and a strategy was adopted whereby the NEWCO provided services to M&S that had previously been provided by the Company. This allowed the Company to be put into Member's Voluntary Liquidation ("MVL") on very short notice in June 2004
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The Company was a sole participating employer in relation to the Desmond & Sons Ltd Pension & Life Assurance Scheme (the "Scheme"). The MVL triggered a wind up and calculation of the section 75 debt. As the Company was in MVL it was treated as an insolvent employer and the section 75 debt was calculated by reference to the Minimum Funding Requirement ("MFR") resulting in no deficit
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However, if calculated on the full buyout basis, the section 75 deficit was estimated to be anywhere between £10.9m to £17m. |
Background to Applicants
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tPR, through its Determinations Panel, made an Order of the Panel dated 27 April 2010 and eventually issued a Determination Notice (the "Notice") on 17 May 2010 to issue a CN. The Notice was addressed to four applicants- Denis Desmond, Donal Gordon, Mrs Annick Desmond and Dr Stephanie Desmond. Each applicant was a previous director or ex shareholder of the company.
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The CN determined that it was not reasonable to impose any liability on Mrs Annick Desmond or Dr Stephanie Desmond but it was reasonable to impose liability on Denis Desmond and Donal Gordon to the tune of £900,000 and £100,000 respectively totalling a £1m CN.
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Denis and Donal appealed to the Upper Tribunal of tPR on 15 June 2010 against the CN. The trustees as persons directly affected also made a Reference to the tribunal on the same date followed thereafter by tPR filing two Statements of Case in identical terms. |
Current Case: Application to Upper Tribunal Determination
- The four applicants made four individual applications on 3 August 2010 to strike out or amend the Trustees' Reference and tPR's Statements of Case. The hearing was heard in private from 7-9 February 2011.
- The Trustees' Reference was that:
- The total sum in respect of CNs that were issued should have been the entirety of the section 75 deficit calculated on a full buyout basis on a yet unspecified/uncalculated sum between £10.9m and £17m or, alternatively, far greater than £1m.
- A CN should have been issued against Mrs. Annick Desmond originally and therefore the tribunal should impose one on her now.
- tPR should have found liability against all three for acting otherwise than in good faith.
- The remaining three applicants contended that the Reference/Statements of Case included matters and allegations which did not and could not form the basis of any lawful or proper Reference and therefore had no reasonable prospect of succeeding. They asked the tribunal to strike out all the relevant parts of the Reference/Statement of Case accordingly.
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The Pension Regulator's Position
- It claimed that the three applicants had been parties to deliberate acts or failures to act that caused the Company, as solvent employer of the scheme, to cease trading and enter MVL. Namely:
- Repeatedly seeking and receiving professional advice with the aim of limiting the Company's liability to the Scheme.
- Failing to inform the trustees of Material Events to the Scheme and its future or acting in such a way as to avoid the trustees being alerted to the decision for MVL in order to avoid the trustees taking steps to increase the company's liability.
- Deciding to enter MVL on short notice without alerting the Trustees.
- Passing a resolution to enter MVL by special resolution on short notice.
- The planning of the MVL and attempts to enhance shareholder value at the expense of the Scheme had been prevalent once advice had been received in achieving a winding up based on the MFR rather than a Buyout Basis which has now led to the Scheme entering the Financial Assistance Scheme ("FAS").
- The acts and failures to act took place at a time before the Pensions Act 2004 (the "PA2004") was in force. Section 38 PA2004 introduced the power to issue a CN with retrospective effect back to 27 April 2004. TPR alleges that the applicants rushed into MVL in 2004 before the PA2004 closed the loophole and so acted for the "main purpose of" ensuring no section 75 debt ever became due.
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Application by Dr Stephanie Desmond To Strike out Case Against Her
Application by Mrs Annick Desmond Against Issuing a Contribution Notice Against Her
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The claims against Mrs Desmond were struck out and her application granted.
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TPR may only issue a CN if there has been a relevant act or failure to act within paragraph (5) of Article 34 of the Pensions (NI) Order 2005. This act must have occurred during the 6 year limitation window.
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No determination had ever been made by tPR to issue a CN against Mrs Desmond before this application. Even assuming the Tribunal had jurisdiction to address the question of whether or not a determination should have been issued, tPR was time barred to issue a notice. The last act or failure to act identified by tPR was the MVL on 3 June 2004. Their statutory powers would have ceased on 2 June 2010. It is not therefore open to the Trustees to seek to resurrect tPR's statutory powers by seeking to make a Reference in respect of Mrs Desmond now. It is not the role of the tribunal to enlarge the tPR's authority and consequently it could not direct it appropriate to issue a CN against her. |
Applications To Strike out Trustees' Reference and Statements of Case
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All eight claims for strike out were rejected. Of particular relevance and importance was the three remaining applicants' eighth strike out claim.
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This claim was to strike out the part of the tPR's Statements of Case requesting an increase in the quantum of the CNs above £1m. The applicants' argued that the Panel had previously rejected that the quantum of the CNs should have been for the whole of the s.75 deficit on a buyout basis and therefore tPR had no power to advance a case in this respect. In addition they argued that tPR should be supporting the original decision of their own Panel.
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This was rejected.
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Following Bonas Group Pension Scheme FS/2010/0007 ("Bonas") a Tribunal does have jurisdiction to increase the quantum of a CN. In Bonas the Tribunal had concluded that the tPR could argue in favour of something different to their Panel's original decision. In particular, they could argue for a larger sum in the CN. Once the decision of the Panel is challenged (i.e. in the present case by a strike out application) there was no reason why tPR should be bound by its Panel's original decision.
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Following Scerri v FSA [2011] ALL ER (D) 168 (where the tribunal had increased the penalty ordered by the regulatory decisions committee on the basis of information received the FSA) it was found that an equivalent power existed in the present context. The quantum could be increased above £1m.
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Further, it was not appropriate to cap the quantum at £1m as a tPR Clearance Statement from April 2007 was sent to the representatives of the Trustees and not the applicants; and therefore the applicants did not have a legitimate expectation as a result of that letter to a cap of £1m. At any rate, any argument of tPR not complying with that statement was a matter for the final hearing on the trustees' Reference to determine. Secondly, the statement concluded that tPR had reserved the right to reconsider the use of its powers if further information came to its attention that materially altered the facts relied upon by it in making the original decision to issue a CN. |
Contact Us
For further information, please contact:
Gary Cullen
Partner
020 7634 8729
gary.cullen@mms.co.uk
Jeremy Taylor
Consultant
020 7634 8799
jeremy.taylor@mms.co.uk
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