Regulator issues Contribution Notice in Carrington Wire case

The Pensions Regulator has published a report on its investigation into the Carrington Wire scheme and the issue of a contribution notice against the sole director of the company who bought the company for nominal consideration from its Russian owners in 2010.

10th June 2015

The Pensions Regulator (TPR) has published a report detailing its investigation into the Carrington Wire Defined Benefit Pension Scheme (the “Scheme”), which led to its decision to issue a Contribution Notice (CN) against an individual who took control of the sponsoring employer.

In April this year, TPR’s Determinations Panel ruled that a CN of £382,136 should be issued to Richard Williams.  Mr William’s company purchased Carrington Wire Ltd (CWL) for £1 from Severstal in 2010 with a purported working capital adjustment of £400,000, the majority of which was received by Mr Williams personally. The sale meant that a guarantee provided by Severstal to the Scheme ceased to have any effect and the Scheme became solely reliant on CWL, which Severstal had already wound down. TPR and the Scheme trustees were only made aware of the sale after it had happened.

The CN follows TPR’s £8.5m settlement with two Russian businesses (PAO Severstal and OAO Severstal-Metiz) earlier this year for their involvement in the Scheme.

A CN requires a specified amount of money to be paid into a pension scheme by an individual or a company.  It can be issued where the person was a party to an act or a deliberate failure to act which was either materially detrimental or which had a main purpose of preventing the recovery of or reducing the amount of an employer debt to the Scheme (a “section 75 debt”).  TPR may only issue a CN if it considers that it is reasonable to impose liability on the person concerned to pay the specified amount.

The case provides some clarity around the interpretation of the ‘main purpose test’ which in this case extended to acts which prevent recovery under a guarantee.  The ‘material detriment’ test was held to be met because of the effect of the acts on ‘scheme obligations’ under the guarantee.  Finally, when considering the reasonableness of issuing a CN, a target’s ‘financial circumstances’ is not limited to the target’s current financial worth but also includes consideration of how the target has ended up in that financial position e.g. taking into account the target’s receipt of monies and how they have been used.

TPR has confirmed that the settlement sum and the funds due from Mr Williams will however not be sufficient to allow the Scheme to avoid entry into the Pension Protection Fund (PPF).  The Scheme is now expected to complete its assessment period and enter the PPF.

Stephen Soper, interim chief executive of TPR, commented that: “The conclusion of this complex case demonstrates that the regulator will, where appropriate, pursue its avoidance powers to seek to help protect member benefits, including in cases where targets are based overseas.”