Pippa Stephens looks at what schemes can learn from the raft of insolvencies in the retail sector to better protect their members’ benefits
With several retail names recently going into administration – including fashion chain Jane Norman last month and Habitat earlier in the year – scheme management teams have been urged to check the financial health of their sponsor to ensure their members’ benefits are protected.
Devi Shah, restructuring partner at Mayer Brown, said while takeovers might be advantageous by protecting jobs, in most cases securing pension schemes will not be priority.
“Many of those [in administration] have very substantial deficits, so even if you’re not in an insolvency process, many companies in the retail sector are going to have a lot less money,” she said.
Looking at the company’s position in the retail market and a thorough understanding of the business should stand trustees in a solid stead.
But schemes have also been warned of a trend in takeovers for the acquiring company attempting to hive off pension schemes with costly liabilities.
“As an independent trustee, we are monitoring the use of pre-pack administration and their affects in final salary pensions scheme liabilities with some concern,” said David Archer, director of Pitmans Trustees.
“While we recognise the use of pre-packages are the only effective way to save a business and jobs, as independent trustees we need to be ever vigilant to ensure the interests of unsecured pension liabilities are protected.”
The dangers of pre-pack administration deals for pension schemes were evident in May when the sale of Silentnight led to the shedding of £100m of its pension liabilities.
The Pensions Regulator is investigating the deal in which Silentnight’s private equity owner, HIG, bought the company via a pre-pack administration.
The pension liabilities were transferred to the Pension Protection Fund (PPF) – leaving Silentnight’s 1,340 pensioners vulnerable to loosing a third of their entitlements.
Lesley Browning from Norton Rose agreed pre-packs could be a danger to pension schemes, particularly if the pension scheme trustees were not being treated in the same way as other creditors to the company.
Browning urged trustees and managers to ask the company to include them in any discussions, should such an arrangement seem imminent.
Zolfo Cooper was the insolvency practitioner for Habitat and Jane Norman.
Partner Gary Squires advised trustees to negotiate an agreement before the employer got into financial stress, as stakeholders would be more flexible in terms of negotiating a positive outcome.
“It’s important trustees engage in restructuring process. It’s likely the regulator and the PPF will become involved at that point,” he said.
He warned it was not always possible to restructure consensually, as in the case of Silentnight, where what “the trustees and the PPF were being offered wasn’t acceptable to them, either because of the treatment of the scheme or for policy reasons.”
Squires said unless trustees had managed to negotiate a contingent asset underpin, they would effectively be bottom of the pile in the statutory order when restructuring – in line with other unsecured creditors.
He agreed trustees were a low priority in the statutory order.
