Vol 8 (2011) - Issue 3

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Pensions: Upper Tribunal Rules on Bonas Contribution Notice

In May last year, the Pensions Regulator used its strongest enforcement power and issued its first contribution notice (CN), for GBP 5.1 million. The CN was issued against Michael Van De Wiele (VDW), the parent company of Bonas UK (Bonas), the sponsor of a defined-benefit pension scheme. The CN was the first of its kind and it caused something of a stir as it upset many preconceptions, particularly regarding the Regulator’s ability to pierce the 'corporate veil' and, perhaps more importantly, the principle of 'reasonableness' that must underlie such regulatory action.



In summary

On 17 January 2011, Mr Justice Warren, sitting as president of the Upper Tribunal of the Pensions Regulator, published the Tribunal’s findings on the appeals by VDW and the Regulator. The application by VDW was for a barring order to strike out the CN. The Regulator on the other hand wanted the CN increased to the amount of the GBP 20 million buy-out deficit and a reversal of the Determinations Panel’s decision not to impose it on the group’s managing director, Mr Beauduin, personally. In short, VDW’s application to have the CN struck out failed, because the Tribunal was not persuaded that many of the complex arguments were suitable for consideration at a summary hearing. Other than barring the Regulator from pursuing its separate CN against Mr Beauduin, the findings are not conclusive because the dispute is now proceeding to a full hearing of the Tribunal. This is, of course, unless the parties find a way to settle in the meantime. Justice Warren did, however, make some interesting observations that may be instructive pending the final outcome.



Observations

Much of the judgment, which is detailed and extensive, relates to procedural matters, and is outside the scope of this article. Instead, it is his comments regarding liability of VDW and the amount of the CN that are most noteworthy. By way of a reminder, the Regulator may impose a CN on a party to an act, or failure to act, the purpose (now amended in the legislation to 'effect') of which was to prevent the recovery of all or part a debt due, or which may become due, from an employer under section 75 of the Pensions Act 1995, i.e. the buy-out deficit. The CN may be for anything up to the s75 debt and its imposition must be 'reasonable'. The original CN was made following a sale of the Bonas business to a company owned by VDW, via a pre-packaged administration. The scheme entered into Pension Protection Fund (PPF) assessment and a dividend was subsequently paid to the trustees and other creditors. The Regulator seemed to conclude that the pre-pack sale had been deliberately undertaken to allow VDW to retain the Bonas business whilst avoiding liability for its pension scheme. The Regulator was seeking to establish the CN at the level of the GBP 20 million s75 deficit. The actual determination was for the PPF deficit of GBP 5 million, which represents the estimated PPF deficit of GBP 8 million less recoveries from the insolvency process.

Following extensive legal argument, Justice Warren concluded that, for consideration at the full Tribunal hearing, the issues boil down to assessing liability and amount in relation to three alleged 'acts'.

In summary:

– Act 1 – failure to engage and negotiate with the trustees or the Regulator;

– Act 2 – minimising the sum paid by VDW for the buy-back of the Bonas business through the administration pre-pack sale; and

– Act 3 – retaining the business while avoiding the ongoing liability to make contributions to the scheme.