Field: Members should have first claim on assets

Speaking about the collapse of airline Monarch, Field said “there’s something rotten in our pensions legislation and company regulation that allows this to happen”.

He added that parliament urgently needed “to address this central question instead of skirting around the edges all the time”.

There’s something rotten in our pensions legislation and company regulation

Frank Field, Work and Pensions Committee

Monarch was founded with the backing of the Switzerland-based Mantegazza family about 50 years ago. The family sold the struggling company in 2014, but to clear the way for a sale to turnaround specialist Greybull Capital, a regulated apportionment arrangement was agreed.

As part of the RAA, the Pension Protection Fund received £30m in upfront cash from shareholders, £7.5m in secured loan notes from Greybull and a 10 per cent equity stake.

This compared with a buyout deficit of £594m in 2013, from which the owners were released.

A member of the Mantegazza family said that the Pensions Regulator and PPF had cleared the transaction following “many months of careful scrutiny”.

The regulator approved the sale to Greybull and the RAA in 2014, saying in its intervention report that all RAA tests had been met and accepting the advisers’ conclusion that there was no avoidance activity. The PPF confirmed it did not object.

The regulator said the Monarch deal led to a better outcome for the scheme than would otherwise have resulted from uncontrolled insolvency.

PPF chief executive Alan Rubenstein recently also said the result was better than receiving nothing, which would have been the case had the company collapsed without an RAA.

Field pushes for shift in power balance

Field argued present legislation favours business owners over the workforce and scheme members. This could be changed, he said, by giving the latter first claim on any remaining assets.

“And then we need to look at much wider things about the whole of corporate governance,” he added.

A debate should start on whether the cover of limited liability “allows the very rich to treat great sectors of industry as playthings, knowing that none of the crashes [are] really going to affect them”, said Field, adding: “I don’t for a moment think this is an easy answer.”

Field said to defend members, trustees need a “small independent unit whose only aim is to promote the wellbeing of people who are pensioners or building up pension rights”.

This would be similar to the Low Pay Unit in which he was involved, and which had campaigned for a national minimum wage before this was introduced in 1999.

Such a privately funded “defence unit”, consisting of lawyers and accountants, would answer questions from trustees and provide an independent brief on how to deal with a scheme’s own service providers.

Unintended consequences

Alastair Meeks, partner at law firm Pinsent Masons, said Field’s proposal for a general lifting of the corporate veil “seems extraordinary… he is proposing the upending of the structure used throughout the developed world to encourage enterprise”.

He also argued that if scheme members were prioritised ahead of other secured creditors, lending to companies with pension scheme deficits would dry up, “resulting in a string of insolvencies”.

Meeks said there was a case for making schemes with deficits preferential creditors in the same way that employees who are owed arrears of pay are. “This might have the paradoxical effect, however, of reducing the amount paid for arrears of pay on insolvency. Those employees who were not in the defined benefit pension scheme would not appreciate this one little bit.”

Hugh Nolan, director at consultancy Spence & Partners and president of the Society of Pension Professionals, said there was nothing wrong with having a transparent debate on limited liability, which he said was preferable to “behind-the-scenes wrangling” where a business owner is expected to have a moral obligation.

However, he added: “It beggars belief to say you invest in a company, and if that company goes bust, you are then liable for it.”

Nolan warned the idea could backfire if the business owners are pension schemes, and said inward investment in the UK would suffer.

He had more sympathy for the idea of giving scheme members first claim on assets.

“Pay of employees is protected to a degree. Effectively we are saying pensions is deferred pay. So why not protect it in the same way?”