On the go: The Pensions Regulator issued a £2mn compliance notice against a former pension scheme sponsor last year after a management buyout left it unable to support its scheme.
The watchdog also reached a £130,000 settlement with the former chief executive of Dosco Group, Martin Cain, it announced on March 31.
In May 2013, German mining equipment business SMT Scharf sold Dosco Holdings for €2mn (£1.69mn) to a shell acquisition company, Dosco Mining Limited. This vehicle had been set up by Dosco’s management team in order to facilitate the sale.
Scharf had acquired Dosco Group in 2010 from UK construction engineering business Billington Holdings.
At the time of the deal, all parties acknowledged that the transaction could affect the employer’s ability to support the Dosco Overseas Engineering Limited (1973) Pension & Assurance Scheme, a defined benefit scheme.
The two sponsors of the scheme are Dosco Overseas Engineering Limited and Hollybank Engineering Co Limited.
TPR said that “they were historically heavily reliant on formal support provided by the Dosco Group’s previous parent company, Billington”.
The regulator received a clearance application for the 2010 deal from a number of parties including Billington, Scharf and Cain. The application said that Scharf would be a better “business” fit.
In March 2012, Scharf appointed Christian Dreyer as a Dosco Group director, who took an interest in the scheme and its impact on its sponsor’s profitability, along with “the prospect that Scharf would realise value from its ownership of the Dosco Group”, the regulator said.
A subsequent report for Scharf’s supervisory board, which it discussed at a September 2012 meeting, considered pension-related risks and recommended a sale of the group.
At the meeting, Cain argued that Hollybank had no future as a company. Scharf opted to delay closing the business in order to avoid triggering the scheme’s section 75 debt.
It also agreed to dispose of Dosco group and end Scharf’s association with the scheme. Dreyer instructed Cain to close the scheme to future accrual.
Two bidders expressed interest in Dosco, with one eventually withdrawing owing to the size of the pension liabilities. Another made a £2mn offer that fell short of Cain’s ambitions for a £2.5mn price tag.
The sale to the shell acquisition vehicle was then completed in May 2013 for £2mn.
The day after the sale was completed, Cain received €250,000 from Scharf under a consultancy agreement that incentivised him to find a buyer for the group.
Cain retained his position as CEO and also took a 60 per cent shareholding in Dosco Mining.
Unlike in 2010, Scharf and Cain did not submit a clearance application to the regulator for the management buyout. They also offered no mitigation and did not notify or consult with the scheme’s trustees until the day the deal was sealed.
Eight months after the transaction, Dosco and Hollybank went into administration, triggering a Pension Protection Fund assessment period.
In December 2015, the trustee agreed a buy-in for the scheme with lowered benefits.
The regulator issued warning notices against Scharf and Cain in March 2019, “based on Scharf’s complete disregard for the interests of the scheme by the inappropriate disposal of Dosco Group to a shell acquisition vehicle, with no investment or realistic prospect of future financial support”.
“The transaction deprived the scheme of parental support on which the employers historically relied.”
The regulator reached its settlement with Cain in December 2020 and issued its compliance notice against Scharf in August 2021.
Its notice against Scharf — which is capped at £2.3mn in total — included, for the first time, a penalty for lost returns and daily interest.
