Vol 12 (2015) - Issue 3

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Statutory Debts Can Be Assigned: The Trustee of the Singer & Friedlander Limited Pension and Assurance Scheme v Corbett [2014] EWHC 3038 (Ch)

Background law
Under UK pensions legislation, if an employer in a defined benefit occupational pension scheme suffers an 'insolvency event' (as defined in the Pensions Act 2004), a debt is triggered, owed by that employer to the pension scheme. The Pensions Act 2004 classifies most forms of UK corporate and personal insolvency as 'insolvency events'.
The debt is the amount by which the cost of buying annuities from an assurance company exceeds the value of the scheme’s assets. It ranks as an unsecured debt.
The legislation creating this debt is s75 of the Pensions Act 1995, hence the debt is often referred to as a 's75 debt'.
The question before the court was whether or not trustees of an occupational pension scheme can assign this s75 debt.

Background facts
Kaupthing, Singer and Friedlander ('KSF') was an Icelandic bank, and was the sponsoring employer of a UK defined benefit occupational pension scheme, called the Singer & Friedlander Limited Pension and Assurance Scheme (the 'Scheme'). KSF entered administration in 2008.
KSF’s entering into administration was an 'insolvency event' as defined in the Pensions Act 2004. Consequently, the Scheme’s actuary certified a s75 debt owed by KSF to the Scheme which, after deducting certain set-offs, came to just under GBP 74m. KSF’s administrators paid to the Scheme dividends amounting to 81.5p in the pound (equating to just over GBP 60m).
The trustees of the Scheme wanted to wind the Scheme up and secure benefits for Scheme members by buying annuities from an assurance company. However, the administrators had stated that they did not expect the administration to end before 2017, and that they estimated that the final dividend would be 85- 86.5p in the pound.
Instead of continuing to run the Scheme until 2017 in the hope of obtaining the final dividend, the trustees of the Scheme wanted to assign the s75 debt. Brokers instructed by the trustees had secured an offer of 88- 89p in the pound. Having taken independent advice from KPMG, the trustees took the view that assigning the debt for that price represented a good outcome.

Application to court
The trustees applied to court for two declarations: (1) that a s75 debt can be assigned; and that (2) the proposed assignment was within their powers. The trustees invited the Pensions Regulator to join the application, but the Regulator declined. The trustees also appointed a member of the Scheme as a representative beneficiary, to represent Scheme members. After taking legal advice, the representative beneficiary decided that it was in the best interests of the Scheme’s members to support the trustees’ application. The application was therefore unopposed.

Decision
The court held that a s75 debt could be assigned. The court noted that there was no express prohibition on the assignment of the debt in s75 itself; that the High Court in Bradstock [2002] ICLR 1427 had held that a s75 debt could be compromised; and that it would be odd if a debt could be compromised but not assigned.