On 21 October 2020, the House of Lords is due to debate a motion to approve the Pension Protection Fund (Moratorium and Arrangements and Reconstructions for Companies in Financial Difficulty) (Amendment and Revocation) Regulations 2020.
The regulations were laid before Parliament on 15 September and they came into force the following day. They are subject to the ‘made affirmative’ procedure. Therefore, both Houses must approve them within a 40-day sitting period or they will cease to apply.
The regulations extend the scope of the Pension Protection Fund’s (PPF) rights as a creditor when moratoriums are in place for relevant co-operative and community benefit societies and when restructuring plans are in place for other relevant societies. These restructuring tools were put in place by the recent Corporate Insolvency and Governance Act 2020 to help organisations in financial difficulty.
The regulations also revoke and replace previous regulations due to a drafting error.
What do the regulations do?
The regulations are connected to recent powers introduced by the Corporate Insolvency and Governance Act 2020 to aid certain corporate entities in financial difficulty. These would enable them to:
[…] obtain a moratorium, to give them respite from their creditors, or be able to propose restructuring plans (compromise or arrangements) to facilitate the rescue of their business.
The regulations extend the PPF’s rights as a creditor when moratoriums are in place for relevant co-operative and community benefit societies, and when restructuring plans are in place for other relevant societies. The Government intends for this to grant the PPF a greater say in any restructuring decisions:
Whilst a moratorium is not in itself a procedure for a business to shed its liabilities, it will become the point at which discussions about a restructuring deal begin. Restructuring will involve trade-offs and so it is intended that the PPF is able to intervene in those discussions, consider the full spectrum of risks and protect the interests of its levy payers.
The PPF was established to pay compensation to members of defined benefit pension schemes where an employer has become insolvent and where there are insufficient assets in the pension scheme to cover PPF levels of compensation. It began operations in 2005.
The current regulations also revoke and effectively replace the Pension Protection Fund (Moratorium and Arrangements and Reconstructions for Companies in Financial Difficulty) (Amendment) Regulations 2020 due to a drafting error.
A body corporate with limited liability that can be used by organisations to conduct a business either as a co-operative or for the benefit of a community. There are two categories of registered society: co-operative societies, which operate for the mutual benefit of their members, who are united by a common economic, social or cultural need or interest; and community benefit societies, the business of which is conducted to provide services for the benefit of a community at large (not just the members of that society).
The provisions of the Corporate Insolvency and Governance Act 2020 were extended to apply to these societies by the Cooperative and Community Benefit Societies and Credit Unions (Arrangements, Reconstructions and Administration) (Amendment) (No. 2) Order 2020.
In addition, the regulations due for approval follow similar regulations which extended the PPF’s creditor role in respect of limited liability partnerships and charitable incorporated organisations. These were approved on 16 September 2020.
The regulations were laid before Parliament on 15 September 2020 and came into force the following day. They are subject to the made affirmative procedure.
The regulations were not reported or flagged up by either the Joint Committee on Statutory Instruments or the House of Lords Secondary Legislation Scrutiny Committee.
The regulations were considered by a delegated legislation committee in the House of Commons on 13 October 2020. They were welcomed by Labour, with the Shadow Minister for Social Security, Karen Buck, stressing the importance of the PPF. However, she did have several questions about the role and stability of the PPF during the current financial difficulties:
As we know, the country faces a dire economic outlook, with severe shocks being inflicted on many employers and many pension schemes. Will the minister say a little more about what assessment the Department has made of the resilience of the Pension Protection Fund? What measures will be undertaken to ensure that the fund is ready and capable when it comes to absorbing the potentially thousands more pension scheme members who will require security over the coming year? Although the regulations are welcome, they do not entirely restore the position that the Pension Protection Fund occupied in restructuring situations before the Corporate Insolvency and Governance Act. Will the minister keep that under review?
Responding, the Minister for Pensions and Financial Inclusion, Guy Opperman, stressed that the fund is doing well and is in a good position to continue to provide compensation to those who need it:
Throughout the summer, I spoke on a number of occasions to the chairman and chief executive of the Pension Protection Fund to ensure that it is sustainable and functioning in a good way. They are confident that their long-term funding strategy and diverse investment approach gives them the ability to weather the current market volatility and any future challenges. Their modelling shows that the fund is well placed to achieve its self-sufficiency target. To put it broadly, the Pension Protection Fund members and members of defined benefit schemes can be confident in the fund’s ability to continue to provide the compensation required and remain a robust safety net.
The minister also stated that the Government would be keeping the situation under review.
The House of Lords is due to consider the regulations on 21 October 2020.
The House of Lords approved similar regulations extending the PPF’s creditor rights for limited liability partnerships and charitable incorporated organisations on 14 September 2020. The regulations received cross-party support, but there were questions about the true power of the PPF in restructuring negotiations and about the PPF’s stability. The Parliamentary Under Secretary of State (Minister for Work and Pensions), Baroness Stedman-Scott, sought to address these concerns by providing further information on the PPF’s resources and on its role in restructuring negotiations. She stressed that the PPF is confident it can intervene in moratorium and restructuring plans as necessary. She also said that the Department for Work and Pensions would continue to have regular meetings with the PPF to review its performance and that the measures would be kept under review.
- Pension Protection Fund, ‘Weathering the current economic storm’, 27 August 2020
- House of Lords Library, Corporate Insolvency and Governance Bill: Briefing for Lords Stages, 5 June 2020
- House of Commons Library, Pension Protection Fund, 25 June 2020
Image by Michael Longmire on Unsplash.