Granada UK Rental & Retail Ltd & Ors v The Pensions Regulator

A financial support direction under Pensions Act 2004 section 43 may be based on events occurring before that provision commenced. Its limited retrospective effect is justified by its social and protective purposes and the statutory requirement of reasonableness.

Reasonableness requires an assessment of all relevant circumstances. These include the target’s past relationship with the employer, its involvement with the scheme, benefits received, responsibility for funding risks and the weight of retrospectivity. Fault or moral hazard is not essential. Even without fault, an earlier transaction may justify a direction where the factors supporting one clearly outweigh the prejudice arising from retrospectivity.

For association under insolvency legislation, a registered shareholder entitled against the company to exercise at least one-third of its voting power has control, despite fiduciary restraints or the appointment of administrative receivers.

Five companies in the ITV group appealed from the Upper Tribunal’s decision in [2018] UKUT 0164 (TCC). The Tribunal had confirmed the Pensions Regulator’s power to issue financial support directions requiring them to support the substantially underfunded Box Clever Group Pension Scheme.

The scheme arose from a highly leveraged joint venture through which Granada and Thorn transferred their television-rental businesses and received cash consideration. The joint venture later failed. Its operating companies entered administrative receivership, leaving the defined benefit scheme with an inadequate employer covenant.

The appeal raised three principal questions: whether section 43 of the Pensions Act 2004 could take account of pre-commencement events consistently with domestic law and A1P1; whether the appellants remained associates of participating employers at the statutory look-back date; and whether the Tribunal had erred in law in finding the directions reasonable.

1. Appeals dismissed. Section 43 of the Pensions Act 2004 permits the Regulator to take account of events preceding its commencement. The statutory references to relationships and involvement which a target “has had” contain no temporal limitation. Giving those words their ordinary meaning also advances the statutory objectives of protecting scheme benefits and limiting recourse to the Pension Protection Fund.

2. The provision contains an element of retrospectivity because present liability may depend on past events. That consequence does not alter accrued rights or the legal effect of past transactions. Any unfairness is moderated by the requirement that a direction be reasonable and by an affected person’s right to a de novo determination before an independent tribunal.

3. The resulting interference with possessions under A1P1 was proportionate. The regime pursued legitimate social and economic objectives, operated symmetrically with the Pension Protection Fund’s exposure and required an individual assessment of reasonableness. It therefore struck a fair balance between targets, scheme members and levy payers.

4. The appellants remained associates of participating employers. Under the debenture, voting control over shares in three employers continued after default unless the security agent gave notice. No effective notice was given. Further, a person registered as holder of shares carrying at least one-third of a company’s voting power is entitled to exercise that power for section 435(10)(b) of the Insolvency Act 1986, notwithstanding fiduciary constraints or the appointment of administrative receivers.

5. The Tribunal committed no error of law in finding the directions reasonable. Retrospectivity, the absence of advance clearance, cessation of practical control and absence of fault weighed heavily against the directions. They were nevertheless clearly outweighed by the appellants’ close relationship with the employers and scheme, the benefits obtained from the leveraged structure and their high degree of responsibility for the risks imposed on the weak employer covenant. Fault and moral hazard were not prerequisites.

6. An appeal from the Upper Tribunal lies only on a question of law. An appellate court must not substitute its own evaluation merely because it might have struck the balance differently. The Tribunal’s conclusion was one it was legally entitled to reach.

1. Court of Appeal (Civil Division): Dismissed the appeals and upheld the Upper Tribunal’s determination: [2019] EWCA Civ 1032.
2. Upper Tribunal (Tax and Chancery Chamber): On a de novo reference, confirmed that the Regulator had power to issue the financial support directions and that imposing them was reasonable: [2018] UKUT 0164 (TCC).
3. Determination Panel of the Pensions Regulator: Determined on 21 December 2011 that financial support directions should be issued to the appellants.