Transactions at an undervalue
Section 52: Restoration orders where transactions at an undervalue
200.The purpose of this section is to ensure that, when an employer has been subject to a “relevant event”, if the assets of the scheme have been reduced by virtue of a transaction at an undervalue involving assets of the scheme, the Regulator may make a restoration order to put the position back to what it would have been had the transaction not occurred.
201.Subsection (1) provides that the provision only applies in relation to an occupational pension scheme which is not a money purchase scheme or a prescribed scheme or a scheme of a prescribed description. Subsection (2) provides that the Regulator may only make an order in certain circumstances where a “relevant event” has occurred and where the transaction was entered into on or after 27th April 2004 and not more than 2 years before the occurrence of the “relevant event”.
202.Subsection (3) describes the purpose of a restoration order – to restore the position to what it would have been had the transaction not been entered into. Subsection (4) defines a ”relevant event” as an insolvency event in relation to the employer, or an application to or notification from the Board of the Pension Protection Fund under section 129, which occurs on or after the “appointed day”.
203.Subsection (5) defines the meaning of “appointed day” and provides that the meaning of insolvency event under section 121 applies when deciding if and when such an event has occurred in relation to the employer.
204.Subsection (6) defines a ‘transaction at an undervalue’ as a transaction which is entered into by the trustees or managers or an appropriate person with a person where no consideration is to be provided towards the scheme or where the consideration is significantly less than the value of the consideration provided by or on behalf of the trustees or managers. An ‘appropriate person’ is defined in subsection (7) as a person of a prescribed description who is entitled to exercise powers in relation to the scheme. Subsection (8) provides that references to “assets” in this section and section 53 include future assets and that references to “transaction” include a gift, agreement or arrangement. Subsection (9) provides that this section does not prejudice the use of any other remedy in respect of the action (e.g. a claim for breach of trust).
Section 53: Restoration orders: supplementary
205.This section provides that a restoration order may require any assets or property which were transferred or received as part of the transaction to be transferred back to the scheme (or the Board of the Pension Protection Fund where it has assumed responsibility for the scheme); or may require any person to pay a sum as specified by the Regulator to the scheme or the Board of the Pension Protection Fund (Subsection (2)). Subsection (3) ensures that a restoration order has no effect to the extent that it prejudices any interest in property which is acquired in good faith and for value. However, subsection (5) adds that, where certain people have acquired an interest in a property or received a benefit as a result of the transaction then, unless the contrary is shown, it is presumed that the interest was not acquired or the benefit was not received in good faith. Subsection (5) lists these people as:
one of the trustees, managers or “appropriate persons” (as defined) who entered into the transaction and persons who are connected or associated with such persons at the time of the acquisition or receipt;
any person who has notice of the fact that the transaction was at an undervalue at the time of the acquisition or receipt; or
any person who, at the time of the acquisition or receipt, is a trustee or manager, or the employer in relation to the scheme, or is connected or associated with such persons.
206.Subsection (6) provides that sections 249 (connected persons) and 435 (associated persons) of the Insolvency Act 1986 apply for the purposes of this section as they do for the purposes of that Act. Section 74 of the Bankruptcy (Scotland) Act 1985 (associated persons) also applies as it does for that Act. Subsection (7) provides that references in the section to “property” cover a broad definition which includes money, goods, things in action, land and every description of property wherever situated, obligations and every description of interest.
207.Subsection (8) provides that references in this section to where the Board has assumed responsibility for a scheme are to where the Board has assumed responsibility under Chapter 3 of Part 2 of the Act (pension protection).
Section 54: Content and effect of a restoration order
208.Subsection (2) provides that a restoration order issued by the Regulator under section 52 must specify the period within which any obligation imposed must be complied with. Subsection (3) provides that, where the order imposes an obligation on a person (A) to transfer or pay a sum of money to a person (B), the sum is to be treated as a debt due from A to B. Subsection (4) provides that if the debt is due to the trustees or managers of the scheme, the Regulator can enforce the debt on their behalf. Subsection (5) deals with the situation where the Board of the Pension Protection Fund has become involved with the scheme during an assessment period, in which case the Board will take over enforcement of the debt. Subsection (6) provides that, where any amount is transferred or paid to the Board in respect of a debt due under a restoration order during an assessment period, the Board must pay that amount to the trustees or managers of the scheme.
Section 55: Contribution notice where failure to comply with restoration order
209.Whereas section 54 provides for enforcement of the restoration order where it imposes an obligation to transfer or pay a sum of money, this section gives the Regulator power to issue a contribution notice where there is a failure to comply with a restoration order which has imposed an obligation to transfer assets other than money, such as property or land for example. Subsection (2) sets out that a contribution notice issued under this section imposes a duty on the person to whom it is issued to pay a specified sum to the trustees or managers of the scheme, or the Board of the Pension Protection Fund where it has assumed responsibility for the scheme. Subsection (3) provides that the contribution due may be either the whole or a specified part of the shortfall sum in relation to the scheme. Subsection (4) defines the “shortfall sum” as the Regulator’s estimate of the amount of the decrease in the value of the assets of the scheme as a result of the transaction at an undervalue.
Section 56: Content and effect of a section 55 contribution notice
210.Subsection (2) sets out that a contribution notice must contain a statement of the matters which constitute the failure to comply with the restoration order and specify the sum which the person is under a liability to pay. Subsection (3) provides that where the liability set out in a contribution notice is a liability to pay the trustees or managers of the scheme, the sum is a debt due from the person specified in the notice to the trustees or managers. Subsection (4) provides that the Regulator can enforce the debt on behalf of the trustees or managers of the scheme. Subsection (5) deals with the situation where the Board of the Pension Protection Fund has become involved with the scheme during an assessment period, in which case it will take over enforcement of the debt. Subsection (6) provides that, where any amount is paid to the Board in respect of a debt due under a contribution notice during an assessment period, the Board must pay that amount to the trustees or managers of the scheme. Subsection (7) provides that, where the contribution notice states that the liability is to pay the Board, the sum is treated as a debt due to the Board.
