Vol 8 (2011) - Issue 4

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Re Uniq plc [2011] EWCH 749 (Ch)

The recent High Court judgment of David Richards J in Re Uniq plc [2011] EWCH 749 (Ch) sanctioned a ground breaking scheme of arrangement, which formed an integral part of a larger restructuring, allowing Uniq plc to undertake a pension deficit for equity swap effectively disposing of its defined benefit pension liabilities and avoiding insolvency.

This case is of importance to practitioners as it shows a willingness of the court to look beyond the terms of the scheme itself, in ascertaining whether a proposed scheme is a genuine compromise or arrangement, where the proposed scheme is an integral part of a wider restructuring. In addition, the pension deficit for equity swap was a novel arrangement and is likely to be explored by other employers looking to dispose of their defined benefit pension liabilities and avoid insolvency.



Background and facts

Uniq plc (formerly Unigate plc) (the 'Company') sponsored a very large defined benefit pension plan (the 'Pension Scheme'). Following the sale of its dairy and logistics business in 2000 the Company, despite significant downsizing of its business, retained responsibility for the Pension Scheme which had over 40,000 members.

A further reorganisation in 2001 resulted in the number of members of the Pension Scheme being reduced to approximately 21,000, most of whom were deferred members or pensioners. Various reorganisations of the business meant that there was a smaller business base from which the Company could fund any deficit in its Pension Scheme. Thus, the Pension Scheme was closed to new members in 2002 and to existing members in 2009.

The deficit in the company’s balance sheet at 31 March 2006 was GBP 125 million. A sum of GBP 97 million was placed into a secure account by the Company in an attempt to meet the deficit. The economic crisis in 2008 resulted in a sharp decline in the value of the Pension Scheme assets (comprising a range of assets including equities, bonds and gilts) and as a result of this and changing assumptions the deficit, by the end of 2008, amounted to approximately GBP 170.9 million. As at 30 June 2010 the deficit calculated using the 'best estimate' assumptions used in the IAS 19 accounting valuation basis, was GBP 229 million. On buy-out assumptions adopted by the Pensions Trustee the net deficit was estimated at GBP 428 million, rising to GBP 473 million at 31 July 2010 (net of the GBP 97 million in the secure account).

The Pension Scheme deficit presented a serious threat to the business of the Company. Its continued growth combined with the smaller business base from which to fund it, led to the Company exploring possible funding options to provide a solution to the large deficit. Any funding solution had to be agreed between the Company and the Pension Scheme Trustee and approved by the Pensions Regulator.

In April 2010, the Pensions Regulator rejected an initial proposal agreed between the Company and the Pension Scheme Trustee. The initial proposal included a three year contributions holiday whereby the Company would not pay any contributions to the Pension Scheme until 2013 at which point the Company would pay the higher of 33% of EBITDA or GBP 10 million to the Pension Scheme until the deficit was cleared. At the time, the Company would not expand on the reasons for the rejection and merely stated that 'the Pensions Regulator has stated that the pensions framework, as currently constituted, does not meet all of its criteria for clearance.'

Following further discussions, the proposed scheme of arrangement (the 'Scheme') was cleared by the Pensions Regulator on 9 February 2011. Despite meeting the requirements of the Pensions Trustee, the Pensions Regulator and preserving Pension Protection Fund (PPF) protection, the Scheme and the proposals to be implemented by it, also required approval from the shareholders (pursuant to the Listing Rules) and the High Court.