A water company has been put into administration by its own pension scheme after failing to pay debts and contributions.
The Biwater Retirement and Security Scheme, known as BRASS, has now entered the Pension Protection Fund’s (PPF) assessment process after the sponsoring employer was wound up by the High Court in July.
As a result of the debts and a poor funding position, the trustees of BRASS had been forced to cut pensions in payment to below the level of compensation payable by the PPF. The lifeboat fund is now working with trustees to restore benefits to PPF levels now that Biwater has been liquidated.
“In the trustees’ view, petitioning for the insolvencies was the only course of action that would protect members’ interests.”
Nick Chadha, PAN Trustees
Biwater was founded in 1968 and provided water infrastructure services in multiple countries. Its annual reports show that it had been facing financial issues for several years, with the firm’s auditors raising concerns about its ability to continue as a going concern.
Chair of the BRASS trustee board, Nick Chadha of PAN Trustees, said: “In the trustees’ view, petitioning for the insolvencies was the only course of action that would protect members’ interests. The insolvency means the scheme has now moved swiftly into the PPF assessment process.”
Court’s verdict on ‘plainly insolvent’ employer
At the hearing in July, Chadha said the judge had stated that the two entities that make up Biwater – Biwater Holdings and Biwater International – were “plainly insolvent and have had ample time to seek an alternative” to being wound up.
The judge also noted a “series of broken promises” from the sponsoring employer.
Chadha explained that Biwater had made “repeated promises” of an imminent “significant investment” that would have enabled it to make good on its funding promises, but nothing had materialised.
In February this year, Biwater published a press release on its website stating that it was set to conclude a £100m investment from an unnamed “global investor”.
The judge said Biwater “needed to provide coherent evidence” that the investment was forthcoming and had “inconsistent explanations” about why it had not happened.
“It has been an immensely difficult time for our members as [Biwater] opposed the winding up, therefore delaying the entry of the scheme into PPF assessment.”
Nick Chadha, PAN Trustees
Biwater accepted that it owed “significant sums to the scheme” leading up to the court hearing in July, Chadha said.
“It has been an immensely difficult time for our members as [Biwater] opposed the winding up, therefore delaying the entry of the scheme into PPF assessment,” he added.
Chadha also expressed the BRASS trustee board’s gratitude to the Pensions Regulator and the PPF for support “throughout this difficult process”.
A spokesperson for The Pensions Regulator said: “We have been in regular contact with BRASS trustees and the PPF, regarding the position of the Biwater Retirement and Security Scheme as part of our role to protect pension scheme members.
“The scheme is now in PPF assessment, and we will give the PPF and the liquidator whatever assistance we can going forward.”
A PPF spokesperson said: “We can confirm that the Biwater Retirement and Security Scheme has now started a PPF assessment period. We’ll continue to work closely with the scheme trustees, TPR, and the liquidator to achieve the best possible outcome for the scheme and its members. Members can be reassured that we’re here to protect their pensions.”
The effect of the gilts crisis
Jennifer Wick, executive chair of Biwater before its insolvency, told Pensions Expert that the pension scheme’s liability-driven investment (LDI) strategy had exposed it negatively to the effects of the gilts crisis of 2022 and into 2023, as the Bank of England aggressively raised interest rates.
Biwater’s accounts show the funding level of BRASS dropped from 77% at the end of September 2021 to 65% a year later.
Wick – a managing partner at Luxembourg-based Sustainable Growth Management, one of Biwater’s main investors – said: “The pension fund, unfortunately, followed an LDI strategy. It was four times leveraged. It didn’t change strategy during that period of 13 interest rate hikes [between January 2022 and December 2023]. Therefore, they got margin calls all throughout that time. The assets dropped considerably because of the margin calls the trustees got.”
In response, the BRASS trustees said in a statement: “The scheme’s hedging strategy took into account its severely underfunded position and a sponsor unable to meet its legal obligations to the scheme. As was made clear in the judge’s verdict, many promises were made which were continually not delivered on.”
BRASS half empty: how the saga unfolded
Biwater Holdings’ most recent accounts, to the end of September 2022, show that the company was already behind on previous payment agreements with BRASS and had substantial debts to multiple parties.
These accounts also showed BRASS to have £42.9m of assets against £66.4m of liabilities, a funding level of less than 65%. This had declined from 82% two years earlier.
Also in the 2022 accounts, Biwater’s auditor, BDO’s James Fearon, stated that there were “multiple material uncertainties which may cast significant doubt on [Biwater’s] ability to continue as a going concern”. The auditor had cited similar concerns in Biwater’s accounts going back to 2018.
These uncertainties included obtaining permission from the pension scheme to delay future payments, as well as completing a capital raise and gaining approval for future projects.
The BRASS trustees first petitioned the court in July 2023 to have Biwater wound up, but Pensions Expert understands a £10m contribution plan was agreed and the winding-up order was abandoned.
In an effort to crystallise the employer debt to the scheme, the BRASS trustees moved to wind up the pension scheme in December 2024.
The BRASS trustees then decided to return to the High Court earlier this year, where a winding-up order against Biwater Holdings and Biwater International was granted in July. RSM was appointed as liquidator for the companies this month.
