Corporate declarations of intent and notifiable events

On 8 September 2021, the Department for Work and Pensions (DWP) published its proposals for amending the notifiable events framework concerning certain corporate activity under the banner of ‘Strengthening The Pensions Regulator’s powers’.

The employer-related notifiable events are intended to give The Pensions Regulator (TPR), and the trustees, timely notice of corporate activity that may have a detrimental effect on sponsor support for a defined benefit pension scheme.

New notifiable events

The new events are the:

• Sale of a material proportion of the business or assets of a sponsoring employer, and
• Granting or extending of a relevant security such that, on insolvency, the secured creditor would rank above the pension scheme.

At the time of the White Paper, the Government referred to the first of these as being in relation to “a scheme employer which has funding responsibility for at least 20% of the scheme’s liabilities”. The 20% threshold would have applied in multi-employer cases only. However, this threshold has been dropped as determining whether it had been met could be complicated and burdensome. The consultation states that a relevant security includes both fixed and floating charges but not, for example, re-financing existing debt. Further detail is promised in a Code of Practice and accompanying guidance from TPR.

Employers still need to decide whether the sale relates to a material proportion of the business/assets. Material proportion is defined in the draft regulations as one that accounts for more than 25% of annual revenue/gross asset value, respectively (as recorded in the most recent Company accounts). Transactions will be considered over the 12 months prior to the notifiable event to prevent “an unscrupulous employer deliberately arranging a series of lower level transactions to avoid scrutiny”.

The existing notifiable event of a change of control of a sponsor is also being amended to bring it into line with the new event triggers, which are linked to “when a decision in principle is made”. This is defined as a “decision prior to any negotiations or agreements being entered into with another party”.

This ‘decision in principle’, therefore, marks the first part of a two-stage process, where stage two is the notice and the new ‘Accompanying Statement’ (formerly referred to as the ‘Declaration of Intent’) that must be sent to TPR and the trustees.

New Accompanying Statement

This must describe:

• The event and the main proposed terms
• Any adverse effects on the scheme
• Any adverse effects on the sponsor’s ability to support the scheme
• Steps taken to mitigate those adverse effects, and
• Communications with the scheme trustees.

The DWP also proposes to remove the existing notifiable event of ‘wrongful trading’ as this is acknowledged to be ineffective with TPR confirming that it has never received such a notice.

Consultation closes on 27 October 2021.