Should the Silentnight anti-avoidance case settlement be a concern to lenders?
Earlier this month the Pensions Regulator (TPR) agreed a settlement in an anti-avoidance case against the current owners of the bed manufacturer Silentnight.
TPR alleged that HIG Group, a US private equity group, deliberately brought about the unnecessary insolvency of the original Silentnight Group in order to buy its business out of administration but leaving its defined benefit pension scheme behind. HIG has now paid £25 million to the scheme. But what are the wider implications of the case? ask Kate Payne and Danyal Enver of Arc Pensions Law LLP.
The Pensions Regulator has issued an ‘s89 intervention report’ in relation to the Silentnight Group Defined Benefit Scheme, detailing the £25 million settlement it has reached with American private equity firm, HIG, in a case that will make lenders and investors take notice of its powers and consider whether they could be within the scope of enforcement action themselves.
The Regulator had sought to use its “moral hazard” anti-avoidance measures against HIG, accusing it of deliberately putting Silentnight (the scheme employer) into an “unnecessary insolvency”. It claimed HIG used the control it had available via lending facilities to do this. The report states HIG wanted to buy Silentnight back during administration, leaving the scheme behind, without funding, forcing it to fall into the Pension Protection Fund (PPF).
The Regulator’s case involved expert testimony and forecasts to demonstrate both HIG’s control and also Silentnight’s likely post 2010 performance had HIG not had that control. Through this, it aimed to show Silentnight could and would have refinanced, continued to trade profitably and funded the scheme, but for HIG’s involvement.
The settlement amount is not enough to keep the scheme from entering the PPF (even with an additional £10m recovered for the scheme from the insolvency process). While this shows the Regulator may negotiate settlements to achieve certainty for scheme members, it is primarily an example of the Regulator showing its teeth against several “well resourced” targets including successfully defending a judicial review.
The Regulator may continue to take this wider view of who could be a target of its powers as it looked to extend the concept of who is connected and associated, which may be of concern to lenders. It could also be a taste of things to come now that it has wider powers under the Pension Schemes Act 2021.
Read Kate and Danyal’s article in The Legal Diary.
The views in this article are intended for general information purposes only and should not be used as a substitute for professional advice. Arc Pensions Law and the author(s) are not responsible for any direct or indirect result arising from any reliance placed on content, including any loss, and exclude liability to the full extent. Always seek appropriate legal advice from a suitably qualified lawyer before taking, or avoiding taking, any action. If you have any questions on the points raised in the above, please do not hesitate to get in touch.