On the go: Members of the House of Lords have pressed the government to provide clarity over the impact of new insolvency laws on pension schemes.
In response to cross-party pressure, the government tabled its own amendments to the corporate insolvency and governance bill, which will be debated when it moves to report stage next Tuesday.
Among the amendments is one which specifies that any liability relating to bank debts, and other loans that arise due to those debts being accelerated during a moratorium, would not be given super-priority on a subsequent insolvency or administration.
Tim Smith, professional support lawyer at Herbert Smith Freehills, told Pensions Expert: “The key change to the text of the bill is that a pre-moratorium debt that arises under a contract or other instrument involving financial services will now only benefit from super-priority if it fell due before or during the moratorium, and (crucially) it ‘is not a relevant accelerated debt’, which is essentially a debt that became due during a moratorium as a result of the relevant bank or lender exercising a contractual power to accelerate the debt.”
This amendment may go some way towards allaying the concerns, reported previously by Pensions Expert, that the proposed new company moratorium, designed to afford struggling companies leeway to develop a rescue plan, would lead to unsecured lending being given super-priority status over unsecured liabilities such as defined benefit schemes.
“In practice, this means that [DB] schemes and [the Pension Protection Fund] would stand to recover even less than they currently would in a liquidation or administration,” said Fred Emden and Daniel Gerring, chief executive and chair of the Society of Pension Professionals, speaking before the new amendments were proposed.
Additionally, the government has “indicated that it will introduce further amendments, which would mean that the PPF will be given rights to information and the right to challenge the actions of the directors and/or the monitor on a restructuring plan”, Mr Smith said.
“I would expect these changes to be made as the government has made clear its intention to do so, and it has already tabled an amendment that would prevent accelerated financial services debts from benefiting from super-priority,” he added.
“However, these concessions do not go far enough to prevent the position of DB schemes and the PPF – along with that of other unsecured creditors and floating charge-holders – from being significantly weakened where a company is in financial distress.”
