L & Ors v M Ltd

Regulation 2(2) excludes a pension scheme from Pension Protection Fund eligibility only where, at the time of the legally enforceable agreement, there is a debt due to the scheme under section 75 of the Pensions Act 1995. An agreement made before any triggering event, which merely reduces a debt that may become due in the future, falls outside the provision. The phrase “debt due” therefore has a temporal requirement. The court preferred this narrower construction because it better accommodates the complementary functions of the Pensions Regulator and the Pension Protection Fund and the statutory distinction between present and contingent debts.

The trustees of an occupational pension scheme sought declarations concerning a proposed corporate refinancing. The proposal would admit a new employer to the scheme, amend the apportionment of any future section 75 deficit, cause the existing employer to pay a nominal amount, and then leave the new employer exposed to a qualifying insolvency event. The issue was whether the proposal constituted a legally enforceable agreement whose effect was to reduce the amount of a debt due to the scheme under section 75, within regulation 2(2) of the Pension Protection Fund (Entry Rules) Regulation 205. The relevant agreement would be made before any winding-up, insolvency or employment-cessation event had occurred.

1. Construction of regulation 2(2). The proposed deeds were legally enforceable agreements entered into by the trustees. However, when made, no debt was due to the scheme under section 75 or section 75A. The agreements altered the future apportionment of a deficit but did not reduce an existing debt.
2. The expression “the amount of any debt due to the Scheme” imposes a temporal requirement. The debt must be due when the agreement is entered into. It is insufficient that the agreement reduces a debt which will, or may, become due after a future triggering event.
3. The court rejected both an unrestricted construction and the narrowest construction confined to a formally quantified debt. It was unnecessary to decide whether a debt could be due before actuarial quantification, or whether Phoenix Venture Holdings Ltd v Independent Trustees Services [2005] PLR 379 governed the meaning of regulation 2(2). An agreement made after a triggering event but before formal quantification might fall within the provision.
4. Statutory context. The narrower construction better reflected the overall scheme of the Pensions Act 2004. The Pensions Regulator and the Board of the Pension Protection Fund have complementary functions. The legislation also repeatedly distinguishes a debt due from a contingent debt, whereas regulation 2(2) does not refer to contingent debts.
5. Authorities. Bradstock Group Pension Scheme Trustees Ltd v Bradstock Group plc [2002] ICR 1427 did not determine whether a compromise could be made before the event giving rise to a section 75 debt. Phoenix Venture Holdings Ltd v Independent Trustees Services explained the distinction between the valuation difference and the debt arising after ascertainment, but the court did not need finally to determine its effect on regulation 2(2).
6. A declaration was made that the Pension Proposal did not fall within regulation 2(2) and therefore did not, on that basis, deprive the scheme of eligibility for entry into the Pension Protection Fund.