New fears for the position of pension schemes on a corporate insolvency

The Corporate Insolvency and Governance Bill (the "Bill") was published on 20 May 2020. The Bill introduces a new type of ‘moratorium’ whereby eligible companies can take 40 days to restructure without the threat of enforcement action from creditors.

The particular concern that arises for pension schemes is that where this moratorium is followed by insolvency, the Bill appears to grant super-priority status to unsecured banking and finance debt, which would rank above the pension scheme's debt.  This is because debts which do not have a ‘payment holiday’ under the moratorium, such as banking and finance debt, gain priority status for 12 weeks after the moratorium. The Bill as currently drafted appears to suggest that deficit repair contributions to a pension scheme are subject to a payment holiday and therefore would not enjoy the priority status afforded to banking or finance debt.

A concern has also been raised that the moratorium process would not trigger a PPF assessment period or the pension scheme's section 75 debt, meaning that the PPF would not be a creditor, damaging the PPF’S ability to secure better outcomes for the scheme.

In the second reading which took place in the House of Lords on 9 June, Lord Callanan noted that “the interaction between pensions legislation and insolvency legislation gives rise to some extremely complicated issues, and the Government are working closely with key stakeholders to determine any implications for the Pension Protection Fund, the Pensions Regulator and pension schemes more generally.” The Committee Stage in the House of Lords has now commenced and we expect further discussions and developments on these issues, of which we will keep you updated.