Re Bonas Group Pension Scheme

19/01/2011

Download a copy of the Bonas decision

The first decision of the Upper Tribunal in a case concerning the Pensions Regulator's moral hazard powers has now been released. It gives important guidance on:

• the scope of contribution notices for avoidance of employer debt under section 38 of the Pensions Act 2004;
• the procedure applicable to warning notices issued by the Pensions Regulator;
• the ambit of references from the Determinations Panel of the Pensions Regulator to the Upper Tribunal;
• Upper Tribunal procedure.

In Re Bonas Group Pension Scheme, the Regulator sought the issue of contribution notices for £20 million against the Belgian parent company of the sponsoring employer of the scheme and its managing director.  The case arose of a pre-pack administration in which a newly formed group company bought the business of the employer back from the administrator.  The scheme had gone into the PPF.

The Determinations Panel decided that no contribution notice should be issued to the director, but that a contribution notice for £5 million (the PPF deficit in the Scheme) should be issued to the Belgian company.  

The company referred the matter to the Tribunal, and in its statement of case on the reference the Regulator sought to revive its case against the director and an increase in the amount of the contribution notice to £20 million.

The President of the Tax and Chancery Chamber of the Upper Tribunal (Mr Justice Warren) decided that the reference by the company did not enable the Regulator to revive its case against the director.  He refused to strike out the claim against the company itself, but rejected the Panel's reasoning and many of the arguments advanced by the Regulator. 

The Tribunal accepted the company's argument that section 38 is concerned with recovery of the section 75 debt and the extent to which the relevant act or failure to act prejudices its recoverability but allowed the Regulator to proceed on two bases:-

• that the Belgian company intended the buy-back to be at the bottom end of the range of defensible values for the employer's business;
• that the section 75 debt for the scheme might have been increased by non-payment of future contributions to the scheme, resulting in a smaller percentage recovery of that debt.

Mr Justice Warren said that, unless the Regulator filed further evidence to suggest otherwise it was difficult to see how, on the most optimistic view from the Regulator's point of view the figure based on the sale at an undervalue case could be greater than £100,000 and that a detailed factual enquiry might reveal there was no real complaint on the second basis.

Robert Ham, QC, and Edward Sawyer appeared for the targets instructed by Ward Hadaway.