Our role during a restructuring or insolvency

BHS, Toys R Us, Debenhams, British Steel. In recent years we’ve seen a number of high-profile company insolvencies and restructurings.

In these cases, our in-house restructuring and insolvency team works alongside The Pensions Regulator (TPR) to negotiate the best outcome for the pension scheme members and for us. 

If we didn’t exist, members would simply receive their share of what was available in the scheme, which might be very little. This is why we always work closely with TPR throughout to ensure members get the retirement they’ve worked so hard for.

Nortel - a positive outcome for a troubled scheme

Nortel Networks UK Limited (Nortel) is a good example of how we worked tirelessly to deliver the best outcome for pension scheme members. 

In January 2009, Nortel entered insolvency proceedings with a £2.1 billion pension deficit. 

For almost 10 years, we worked together with TPR and the scheme’s trustees to secure recoveries of more than £1 billion for the Nortel Networks UK Pension Plan. These payments allowed the scheme to buy-out benefits for members with an insurer, at higher levels than our compensation.

Although it’s not always possible to achieve such a positive outcome for troubled schemes, we're here to help protect these scheme members by compensating them for their lost pensions.

Our approach to restructuring and insolvency 

During a restructuring or insolvency, the scheme is usually one of many unsecured creditors. With no special advantages in negotiations, proposals must satisfy our seven published principles, including: 

1. Employer insolvency is inevitable
2. The pension scheme will be substantially better off following the deal than it would be once the employer is insolvent 

This results in improving the funding position of the scheme and reducing the risk to us. 

In company restructuring, we’ll also seek to get the pension scheme at least 33 per cent of the equity of the restructured company. 

How we work with TPR across different cases

Our objectives are broadly similar but we take a different role to TPR, depending on the case in hand.  

Company voluntary arrangements (CVAs)

We’ve seen a rising trend in this type of insolvency, which allows a company in significant financial difficulties to reach an agreement to compromise or pay its creditors over a period of time or perhaps both. 

We evaluate and scrutinise these proposals to make sure they’re not being used to abandon pension responsibilities. As a CVA doesn't require formal TPR clearance, our tough stance in these negotiations is crucial. We use our voting power as creditors to ensure it doesn’t pass if it’s not in the best interest of the scheme and its members. 

You can read more in our published guidance for employers and their advisers on CVA proposals.

Regulated apportionment arrangements (RAAs)

RAA’s are rare. Neither we nor TPR enter into them lightly. They allow a company to free itself from its financial obligations in relation to its pension scheme to avoid insolvency. 

We’ll only back a proposal if it provides a significantly better return for the pension scheme than it would receive through the normal insolvency process. Throughout these discussions we support TPR, who takes the leading role in negotiations.

Pre-pack administrations (pre-packs)

A pre-pack administration is where the sale of a business and assets is negotiated before the appointment of administrators and completes either immediately upon, or shortly following, their appointment. The new company will not have the responsibility for the pension scheme as we recently saw with Johnston Press and House of Fraser.

In these cases, if there are insufficient assets for the scheme to buy-out benefits with an insurer at above PPF levels, the scheme will transfer to the us. We are always vigilant to ensure pre-packs are not used for 'pensions dumping'.

You can find out more about what we expect from insolvency practitioners in our clear pre-pack guidance.

Find out more

Get in-depth guidance on restructuring
Learn how to prepare your pension scheme when there’s an increased risk of insolvency