PPF: Our new approach to company voluntary arrangements

At the turn of the 21 century, the preferred model of restructuring was the use of ‘‘pre-packaged administrations’’.

This type of arrangement presented a risk of ‘pensions dumping’, which the Pension Protection Fund continually seeks to avoid. Fortunately, our guidance on the issue, together with the 2014 Graham review into pre-pack administration, largely addressed this problem.

We hope that this refreshed CVA guidance... will help assist those drafting a CVA to meet the requirements that will allow us to vote in favour of an arrangement

Scope for CVAs to be misused

However, we are now witnessing the rise of a different form of restructuring, called a company voluntary arrangement.

Like pre-packs, there is scope for CVAs to be misused, so it is important that we continue to evaluate and scrutinise these methods of restructuring and ensure they are not exploited for financial advantage or abandoning pension responsibilities.

With this in mind, it is important to stress that the PPF looks at CVA proposals under two headings: those where the pension scheme will be compromised, either as one of a body of creditors or where it is the only creditor being affected; and those where it is envisaged that the scheme will continue unaffected following the approval of proposals.

Where a scheme is compromised, the PPF applies its published restructuring principles. The gateway criteria for this is that insolvency must be inevitable and the CVA process is not being used as a means of avoiding substantial creditors.

Poor track record warrants new approach

Once we are satisfied that this criterion has been met, we will want to ensure that the CVA’s financial return to the scheme is significantly better than it would be in an administration or liquidation. One of the most important factors here is assessing how much pension scheme debt is being avoided by the proposal.

‘Landlord only’ CVAs are an example of where the pension scheme is purported to be unaffected. We have previously tried to remain neutral in these circumstances, allowing landlords to decide the outcome of the vote.

However, a poor track record, with notable failures including BHS, Toys R Us and Austin Reed, has meant we have had to develop a new approach.

This new approach is outlined in our recently published guidance on CVAs, designed to assist employers and their advisers when they put together a CVA proposal and ensuring that all of the issues mentioned are fully addressed. The failure of many CVAs is due to the existence of problems that have no substantial plan in place to rectify them.

We work closely with the Pensions Regulator on all CVAs, and consider if the scheme and the PPF are sufficiently protected by the proposals.

We will always look for the best outcome for our levy payers and members, and we hope that this refreshed CVA guidance, which can be found here, will help assist those drafting a CVA to meet the requirements that will allow us to vote in favour of an arrangement.

Malcolm Weir is director of restructuring and insolvency at the PPF