Part 1

The Pensions Regulator

Contribution notices where avoidance of employer debt

Section 38 contribution notice issued by reference to employer insolvency test: defence
38D
1
This section applies where—
a
a warning notice is given to any person (“P”) in respect of a contribution notice under section 38, and
b
the contribution notice under consideration would be issued wholly or partly by reference to the Regulator's opinion that the employer insolvency test is met in relation to an act or deliberate failure to act to which P was a party.
2
If the Regulator is satisfied that P has shown that—
a
conditions A and C are met, and
b
where applicable, condition B is met,
the Regulator must not issue the contribution notice by reference to its being of the opinion mentioned in subsection (1)(b).
3
If the Regulator is satisfied that P or another person has shown that condition D is met, the Regulator must not issue the contribution notice by reference to its being of the opinion mentioned in subsection (1)(b).
4
Condition A is that, before becoming a party to the act or failure, P gave due consideration to the extent to which, if a debt under section 75(4) of the Pensions Act 1995 were to fall due from the employer to the scheme—
a
immediately after the act or failure, or
b
where the failure might continue for a period of time, at any time within that period,
the act or failure might materially reduce the amount of the debt likely to be recovered by the scheme.
5
Condition B is that, in any case where as a result of that consideration P considered that the act or failure might have such an effect, P took all reasonable steps to eliminate or minimise the potential for the act or failure to have such an effect.
6
Condition C is that, having regard to all relevant circumstances prevailing at the time of the act or at the time when the failure to act first occurred, it was reasonable for P to conclude that, if a debt under section 75(4) of the Pensions Act 1995 were to fall due from the employer to the scheme—
a
immediately after the act or failure, or
b
where the failure might continue for a period of time, at any time within that period,
the act or failure would not materially reduce the amount of the debt likely to be recovered by the scheme.
7
Condition D is that, immediately after the relevant time, the value of the assets of the scheme equalled or was more than the amount at that time of the liabilities of the scheme.
8
P is to be regarded as giving the consideration mentioned in condition A only if P has made the enquiries, and done the other acts, that a reasonably diligent person would have made or done in the circumstances.
9
For the purposes of condition C the reference to the circumstances mentioned in that condition is a reference to those circumstances of which P was aware, or ought reasonably to have been aware, at the time of the act or the time when the failure to act first occurred (including acts or failures to act which have occurred before that time and P's expectation at that time of other acts or failures to act occurring).
10
For the purposes of conditions A, C and D the amount of any debt due at the time in question from the employer under section 75 of the Pensions Act 1995 is to be disregarded.
11
In the case of acts or failures to act forming part of a series, P is to be regarded as having shown the matters mentioned in subsection (2) if P shows in the case of each of the acts or failures in the series that—
a
conditions A and C are met, and (where applicable) condition B is met, in relation to the act or failure, or
b
the act or failure was one of a number of acts or failures (a “group” of acts or failures) selected by P in relation to which the following matters are shown.
12
The matters to be shown are that—
a
before becoming a party to the first of the acts or failures in the group, condition A is met in relation to the effect of the acts or failures in the group taken together,
b
condition B is (where applicable) met in relation to that effect, and
c
condition C is then met in relation to each of the acts or failures in the group (determined at the time at which each act or failure concerned occurred or first occurred).
13
If at any time P considers that condition C will not be met in relation to any particular act or failure in the group—
a
the previous acts or failures in the group are to be regarded as a separate group for the purposes of subsection (11), and
b
P may then select another group consisting of the particular act or failure concerned, and any subsequent act or failure, in relation to which P shows the matters mentioned in subsection (12).
Nothing in paragraph (b) is to be read as preventing P from showing the matters mentioned in subsection (11)(a).
14
If—
a
P is unable to show in the case of each of the acts or failures in the series that the matters set out in subsection (11)(a) or (b) are met, but
b
does show in the case of some of them that those matters are met,
the acts or failures within paragraph (b) are not to count for the purposes of section 38C as acts or failures to act in the series.
15
In this section—
a
“
the relevant time
” has the meaning given by section 38C;
b
“
a warning notice
” means a notice given as mentioned in section 96(2)(a);
c
a reference to a party to an act or failure to act includes a reference to a person who knowingly assists in the act or failure.
Pt. 1 applied in part (with modifications) (20.7.2005 for specified purposes, 1.9.2005 for specified purposes, 5.12.2005 for specified purposes) by The Financial Assistance Scheme Regulations 2005 (S.I. 2005/1986), regs. 1(1), 4, Sch. 1 Pt. 1 (as amended (17.7.2008) by The Financial Assistance Scheme (Miscellaneous Amendments) Regulations 2008 (S.I. 2008/1903), regs. 1, 5(2), 13; (10.7.2009) by The Financial Assistance Scheme (Miscellaneous Provisions) Regulations 2009 (S.I. 2009/1851), regs. 1, 5, 18; (2.4.2010) by The Financial Assistance Scheme (Miscellaneous Amendments) Regulations 2010 (S.I. 2010/1149), regs. 1, 5, 15)
Ss. 38C, 38D inserted (1.10.2021) by Pension Schemes Act 2021 (c. 1), ss. 103(3), 131(1); S.I. 2021/950, reg. 2(5)(a) (with reg. 3(1)(2))