The Pensions Regulator was right to seek to impose a financial support direction on ITV in relation to the Box Clever defined benefit pension scheme, according to a court judgment published on Friday.
The decision by the Upper Tribunal, which rules on the decisions made by the regulator’s determinations panel, means subject to appeal, the regulator can now ask ITV to agree a strategy for topping up the scheme’s funding.
It is the first time a pensions anti-avoidance case has been heard in full, and was billed as a key test of the extent of the regulator’s powers as it tries to be “clearer, quicker and tougher”.
Box Clever was created as a leveraged joint venture, funded by a loan from the German Westdeutsche Landesbank, merging the rental businesses of Granada, now ITV, and appliances company Thorn in 2000. It went into administration in 2003.
What the trustees and we really want from this is actually for the members to see something tangible
Emma King, Eversheds Sutherland
In the hearing, ITV had argued that because the entire saga had taken place before the Pensions Act 2004 established the regulator’s moral hazard powers, an FSD would be retrospective and therefore invalid.
The tribunal rejected this argument, noting that shareholders “retained an ongoing interest in the merged business with the possibility of further value being generated if the business was successful, but without having to bear any responsibility if the business, whose strategy they continued to determine, subsequently failed”.
Mike Birch, the regulator’s director of case management, said in a statement: “We are very pleased with this ruling, which sends a clear message to companies linked with DB pension schemes that we will not hesitate to use our anti-avoidance powers where we believe it is reasonable for them to provide financial support.”
Appeal on the cards
ITV has announced its intention to appeal the decision, with a spokesperson saying the broadcaster “continues to believe that the case brought against it is unfair”.
“The tribunal repeatedly stressed in its judgment that no blame or criticism should be attributed to ITV concerning the transaction, 18 years ago, that formed the Box Clever joint venture,” the spokesperson added. “There were sound reasons for implementing that transaction, which was, in good faith, regarded as being in the best interests of Granada’s shareholders, employees and consumers.”
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If that appeal is also unsuccessful, the regulator would be free to issue an FSD against ITV, with a view to funding the Box Clever scheme’s £115m deficit. Its 2,800 members are currently being paid benefits at Pension Protection Fund levels.
ITV would then have to agree a package of assistance to the scheme, likely involving cash funding, to avoid the regulator issuing a section 47 contribution notice. That process itself would be subject to a warning notice issued and potential appeal by ITV.
Members a long way from payout
For the trustees and members of the Box Clever scheme, the saga of continuing court dates and appeals, running since the regulator issued a determination notice in 2011, may continue for some time.
Emma King, a partner at law firm Eversheds Sutherland who acted for the Box Clever trustees, said members have seen their retirement incomes cut, while a proportion may have died by the time any compensation is paid.
“What the trustees and we really want from this is actually for the members to see something tangible,” she said.
If the FSD does not bring the scheme’s funding above solvency on a PPF basis, members are unlikely to see any benefit, an outcome King said would be “disappointing”. A spokesperson for the regulator confirmed its focus was on securing improvements for the members.
Regulator’s powers can look back
The case involves particularly thorny legal challenges to the regulator’s powers. The court considered both whether the retrospectivity of the FSD was a fundamental barrier to its issuance and whether that affected its reasonableness.
The key to the regulator’s case, upheld so far by the courts, is a distinction between types of retrospectivity, explained Mark Smith, a partner in the pensions practice at law firm Taylor Wessing.
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The tribunal did not find any fault or make any criticism of ITV’s commercial activities, which would have been legitimate before the introduction of the moral hazard powers. However, it did recognise a present responsibility arising from those past actions.
“It’s not retrospective in the prohibitive sense, it’s just that the past has an effect on the future,” said Smith. “The structure of the commercial transaction allowed Thorn… and ITV to benefit commercially from the business without having the liability to contribute.”
