The leveraging up of TV rental company Box Clever put members’ pensions at risk while extracting maximum value for its shareholders, a landmark Upper Tribunal case about the Pensions Regulator’s powers has heard.
The watchdog is seeking to impose a financial support direction on Granada, now merged into ITV, claiming that it bears responsibility for the pension scheme of Box Clever.
Box Clever was created as a joint venture merging the rental businesses of Granada and appliances company Thorn in 2000. It went into administration in 2003, and the administrators sold it to new owners in 2005. However, the proceeds from the sale were not enough to meet the claims of the trustees.
We do also say that the targets received very substantial benefits
Nicolas Stallworthy QC
Box Clever went into administration before the regulator’s moral hazard powers – designed to protect members and the newly created Pension Protection Fund – came into force in 2005.
Lawyers acting for the regulator argued on Monday that the watchdog’s statutory objective to protect members as well as the PPF meant it could take action over any historic detrimental action.
“It is therefore not just about the PPF first and foremost, it is about pensioners getting the deferred remuneration for which they have worked,” Nicolas Stallworthy QC told the tribunal.
Joint venture sealed Box Clever's fate
The Box Clever pension scheme – which is in PPF assessment – and its members are being paid PPF benefits. It has a buyout deficit of around £90m.
Stallworthy contended that the case was about “the relationship which [Granada/ITV] have had with the employer [Box Clever] and the scheme to which, of course, the [joint venture] transaction is relevant”.
Specifically, that refers to the financing that led to Box Clever’s creation. The company was formed with £850m of bank debt from the former German bank WestLB. Granada extracted £526m of immediate cash benefit, the tribunal heard.
Granada and Thorn created these risks in Box Clever’s finances, the regulator’s lawyers said, and as such it is more reasonable for ITV to provide support to the scheme than for these risks to be passed onto scheme members and PPF levy payers.
“Although we say that there would be no need to establish benefit or any characterisation of the leveraging as imprudent, we do also say that the targets received very substantial benefits,” Stallworthy added.
Human rights invoked
The regulator has also asserted that its powers have often been shown to reach far back into the past, citing its claims from Nortel and Lehman Brothers.
However, both of those cases resulted in settlements before a full hearing was carried out.
This led Lord Pannick QC, acting for ITV, to claim instead that this was an “unprecedented attempt to use the FSD jurisdiction so as to impose liabilities on the target by reference to acts, all of which occurred before the [Pensions Act 2004] came into force”.
In a late development, lawyers acting for ITV have now claimed that acting retrospectively is not only precluded by UK law, but is also retrospective in the sense conveyed by the European Convention on Human Rights.
An attempt by the Welsh Assembly to recover costs from companies responsible for asbestos-related medical issues, but which were acting legally at the time, was previously deemed to contravene the right to property.
No end in sight for Box Clever case
A long-running case over the Box Clever Group Pension Scheme is continuing after the Court of Appeal rejected an application for appeal by ITV, former co-owners of the TV rental business, with a substantive hearing at the Upper Tribunal taking place in 2018.
“We say that is precisely the situation here, this is retrospective application,” Lord Pannick added.
Granada could not access clearance
ITV is also arguing that, as Granada was not able to seek clearance prior to the creation of the regulator’s moral hazard powers, it could not be subject to the regime as imposed by the 2004 act.
“The creation of the regulator’s power to impose an FSD was tempered by parliament with the ability of the potential target to seek and obtain a clearance statement,” said Pannick.
Regardless of whether the regulator’s powers apply retrospectively, ITV’s lawyers have also questioned the validity of the FSD, including suggesting that the trustees of the Box Clever scheme took decisions which were to the detriment of the scheme.
Chair of trustees Alan Herbert is due to give further evidence on Tuesday. The case continues.
