Danapak Flexibles Retirement Benefits Scheme: Determination notice

Determination notice under section 96(2)(d) and of the Pensions Act 2004.

The Pensions Regulator case ref: C174752583

A case team (the “Case Team”) of the Pensions Regulator (“TPR”) made a request on 27 April 2023 (the “Request”), that the Determinations Panel of TPR consider the issues in a Warning Notice dated 16 September 2021 (“the Warning Notice”), that relate to the Danapak Flexibles Retirement Benefits Scheme (“the Scheme”), in respect of which the employer is Danapak Flexibles Limited (the “Employer”) and the trustee is Pi Consulting (Trustee Services) Limited (the “Trustee”). Following that Request members of the Determinations Panel were appointed as the case panel for this matter (the “Case Panel”).
As matters stood at the time of the Request, regulatory action was proposed in relation to four individuals, namely Mr Thomas Christopher Wrigley (“Chris Wrigley”), his wife Mrs Elizabeth Anne Wrigley (“Elizabeth Wrigley”), his brother Mr Robert Paul Wrigley (“Paul Wrigley”) and his sister Mrs Elizabeth Ann Pelgrave (“Ann Pelgrave”). Also, at the time of the Request, the focus of the Case Team’s case was on an alleged series of four acts each said, in some way or other, to have involved the extraction of value from the Employer.
On 10 July 2023, the Case Panel issued directions in preparation for a Determination Meeting scheduled to commence on 2 November 2023.
Shortly before the Determination Meeting a settlement was reached between TPR and two of the four individuals who were targets of regulatory action, namely Chris Wrigley and Elizabeth Wrigley. This meant that the process was then concerned with the proposed regulatory actions in relation to Paul Wrigley and Ann Pelgrave only. The settlement also meant that the focus of the matter shifted from the alleged series of four acts referred to above to the second of the four acts, an act concerned with the sale of shares in the parent of the Employer, Discovery Flexibles Holdings Limited (“DFH”).
The Determination Meeting took place over two days, 2 November and 3 November. At the Determination Meeting oral argument was made on behalf of the Case Team (represented by Mr Thomas Robinson of Counsel), Paul Wrigley (represented by Ms Jennifer Seaman instructed by Squire Patton Boggs) and Ann Pelgrave (represented by Mr Michael Uberoi and Ms Charlotte Elves instructed on a direct access basis). Oral evidence of fact was received from Paul Wrigley and Ann Pelgrave. A substantial amount of written material was also provided to the Case Panel, which included amongst other things a significant volume of contemporaneous documentation, and two written witness statements from each of Paul Wrigley and Ann Pelgrave. The corporate trustee of the Scheme also attended the Determination Meeting but took no active part.

Matters to be determined

The matters to be determined are:
1. whether to issue a contribution notice (“CN”) under section 38 of the Pensions Act 2004 (PA 04) to Paul Wrigley and if so in what sum, and
2. whether to issue a CN under section 38 PA 04 to Ann Pelgrave and if so in what sum.
At the Determination Meeting the Case Team sought CNs on a sole liability basis against each of Paul Wrigley and Ann Pelgrave in the sum of £360,437 plus an adjustment to reflect the passage of time. Its primary case as to the passage of time adjustment to be applied was one based on a fixed interest rate of 2.5% p.a. compound up to the date of the Determination Meeting (which on the Case Team’s calculations amounted to £80,056 in respect of each of Paul Wrigley and Ann Pelgrave), with a daily rate based on Bank of England Base Rate + 2.0% simple thereafter.

The Decision

The Case Panel has determined to issue a CN to each of Paul Wrigley and Ann Pelgrave.
In the case of each of Paul Wrigley and Ann Pelgrave the Case Panel has determined that a CN should be issued in the sum of £180,218.50 (being 50% of £360,437), plus an adjustment to reflect the passage of time since 2016.
The passage of time adjustment to be applied in each case up to 2 November 2023 (the date of the Determination Meeting) is £37,134.66. For the period from 2 November 2023 up to the date of payment, a daily rate equivalent of an annual rate of Bank of England Base Rate +2.0% simple is to be applied. This is subject to the total sum payable (including not only the principal sum but also any adjustment for the passage of time) being capped by the statutory “shortfall sum”. As explained at paragraph 96 below, the Case Panel considers it appropriate to take the “shortfall sum” to be £5 million.
For the avoidance of doubt, and in circumstances where the Case Team did not seek that liability be imposed on a joint and several basis as between Paul Wrigley and Ann Pelgrave, the sum of liability imposed will be on a sole liability basis and therefore not joint and several as between them.

Directly Affected Parties

Under section 96(2)(d) PA 04 the Determinations Panel must give notice of its determinations to such persons as appear to be directly affected by them. This Determination Notice contains two determinations, one relating to Paul Wrigley and the other to Ann Pelgrave.
The following persons are directly affected by the determination in relation to Paul Wrigley:
1. Paul Wrigley,
2. the Employer; and
3. the Trustee.
The following persons are directly affected by the determination in relation to Ann Pelgrave:
1. Ann Pelgrave;
2. the Employer; and
3. the Trustee.

Material facts

Set out below is a summary of the key facts, under the following headings:
1. Background to the family businesses
2. Background to the Scheme
3. The sale of DFH shares in more detail

Background to the business

Over time, a number of family businesses were held equally between Chris Wrigley, Paul Wrigley, Ann Pelgrave and their parents (or one or other of them). The first of these was a business called Tressanda, which was acquired in 1993 with finance from their father. A number of businesses were acquired subsequently, all on the same principle of a four-way ownership split.
In May 2008 the Employer was acquired using an acquisition vehicle called Fabcorp Ltd – this was subsequently named Discovery Flexibles Holdings Limited, and is the company defined above as DFH. In May 2008 the Employer entered into an invoice discounting facility with RBS. This was initially limited to £500,000 but later increased.
The Employer obtained clearance from TPR for this acquisition under section 42 PA 04. Chris Wrigley had relied on what was said in the context of that clearance application as showing that if the Employer had not been acquired by DFH it was likely to have entered administration. That is not disputed by the Case Team. As part of this process, clearance was obtained for the Employer to enter into the invoice discounting facility referred to above, and a debenture over the Employer’s assets in support of it. That debenture was to have priority over the sums owed to the Scheme. It was clearly recognised then that entering into the invoice discounting facility, and the giving of security for it, risked prejudicing the Scheme, hence the need for the Employer to seek clearance.
From this point until Chris Wrigley sold the Employer in February 2019, the Employer made monthly payments for the benefit of Chris Wrigley and his wife. These (to the extent that they fell within the 6 year period prior to the issue of the Warning Notice) were the subject of the first part of the wider series of four acts referred to at paragraph 2 above.
On 5 November 2008 Chris Wrigley became a trustee of the Scheme. Further background on the Scheme is given in the next section below.
On 22 January 2010 Ann Pelgrave became a director of the Employer and remained in that role until her resignation in March 2016. She similarly became a director of other companies within the group of family businesses. She has explained that she was in effect what she described as a “paper-only” director, with Chris Wrigley running the relevant businesses.
Over the period of 2011 to 2012 there were disagreements in relation to the shareholding, salary and fees Chris Wrigley should have, be given or benefit from, to reflect the work that he was doing for the family businesses, and also in relation to the funding of the Tressanda business. In July 2012, there was an event where Chris Wrigley removed money, which was subsequently repaid, from the company Pink Printers Ltd’s bank account without proper justification. It is relevant to note that Paul Wrigley and Ann Pelgrave developed a distrust of Chris Wrigley in his conduct in relation to the family business, and a scepticism as to whether he would act appropriately in relation to the family companies.
It was against that background that the sale of DFH shares, the facts relating to which form the core factual basis of the proposed regulatory action, took place. The facts about that sale are set out in further detail below. But in outline:
1. As of September 2015, the Employer was 100% owned by DFH. DFH was owned by members of the Wrigley family: 25.7% of the shares were held by Mr XXX XXXXXXX (the father), and each of the children Chris Wrigley, Ann Pelgrave and Paul Wrigley owned 24.8%.
2. In September 2015 Chris Wrigley proposed to his parents and siblings that, as part of a wider transaction, they sell their shares so that he (or an entity owned by himself and his wife) would become the 100% owner of DFH.
3. The proposal was ultimately taken forward, and, in March/April 2016, as part of that transaction, in exchange for shares in DFH (some of which were shares received from their father following tax advice on the structuring of the transaction), each of Paul Wrigley and Ann Pelgrave received the cash sum of £360,436. The new 100% owner of DFH was Ash 160 Limited, subsequently renamed Discovery Flexibles Group Limited (“DFG”), an entity itself then owned by Chris Wrigley and his wife.
4. The payments of £360,436 were funded by means of the Employer drawing down £800,000 on its invoice financing facility with RBS and transferring the sum to another family-owned entity Pink Printers Ltd (steps that were taken in September 2015 with a view to the proposed transaction). The sum was first held and then used to (amongst other things) fund the payments to Paul Wrigley and Ann Pelgrave in March/April 2016. Initially Pink Printers Ltd was treated as owing the Employer £800,000, but this liability was subsequently transferred to DFG.
5. The result of this transaction was that £800,000 of the Employer’s drawdown facility was used, not for the Employer’s own working capital purposes, but to fund a purchase of shares in the Employer’s owner.
There were subsequent events over the period April 2016 onwards that the Case Team relied on in relation to the alleged wider series (the alleged asset stripping and sale at an overvalue of Pink Printers Ltd to the Employer, and ongoing support being provided by the Employer to other entities in which Chris Wrigley was interested). These need not be addressed here for reasons further explained at paragraphs 141 to 143 below.
Finally, on 15 February 2019 the entire issued share capital in DFG, the owner of DFH, was sold to a management buyout vehicle Pack 34 Ltd. DFG still owes the sum of £800,000 to the Employer. Similarly, the invoice financing facility used by the Employer and referred to above has remained in a debit balance of at least £800,000.

Background on the Scheme

The Scheme was established by a Definitive Trust Deed and Rules in 1998. The Employer was from the outset the statutory employer in relation to the Scheme. The Case Team set out the valuation history of the Scheme in a table as follows:
Table 1: Valuation history of the scheme

Valuation date	Assets, £m	Deficit (TPs), £m	Deficit (PPF),£m	Deficit (Buy-out), £m
1 April 2008	16.5	5.3	5.9	19.2
1 April 2011	18.5	3.4	5.5	17.9
1 April 2014	20.6	4.4	8.8	26.4
1 April 2017	24.7	16.2	13.4	26.3
1 April 2020	22.8	19.6	17.0	24.8

The repeated message from the Employer to the Trustees from May 2009 onwards was that its business was under cashflow pressure which made supporting the Scheme difficult for the Employer to manage. The Employer asked the Scheme to help by paying the Pension Protection Fund (PPF) levy. Significant sums of PPF levy were paid by the Scheme, in at least some cases on the basis that the Employer would in due course reimburse the Scheme. Over the period 2012 to 2017 inclusive the total PPF levy paid by the Scheme amounted to £899,138. The Case Team also drew attention to the fact that the Scheme bore a further £318,470 of expenses that were not reimbursed by the Employer.
Annual deficit repair contributions paid by the Employer to the Scheme, as set out by the Case Team, were as follows:
Table 2: Deficit repair contributions paid by the Employer

Date	Annual amount of deficit repair
April 2008 – March 2009	£232,726
2009 - 2010	£238,002
2010 - 2011	£240,000
2011 - 2012	£130,000
2012 - 2013	£80,000
2013 - 2014	£77,220
2014 - 2015	£83,499
2015 - 2016	£88,149
2016 - 2017	£90.675
2018 - 2019	£95,264

In late 2015 / early 2016, the most recent triennial valuation had a valuation date of 1 April 2014. This valuation was signed off in July 2015, and included a recovery plan extending to 30 June 2030. The Employer contributions required to repair the deficit at the valuation date were as follows:
Table 3: Employer contributions required to repair the deficit

Period	Monthly payment	Annualised payment
July 2015 – June 2016	£7,402	£88,824
2016 - 2017	£7,587	£91,044
2017 - 2018	£7,777	£93,324
2018 - 2019	£7,971	£95,652
2019 - 2020	£8,170	£98,040
2020 - 2021	£9,821	£117,852
2021 - 2022	£11,805	£141,660
2022 - 2023	£14,189	£170,268
2023 - 2024	£17,055	£204,660
2024 - 2025	£20,501	£246,012
2025 - 2026	£24,642	£295,704
2026 - 2027	£29,619	£355,428
2027 - 2028	£35,602	£427,224
2028 - 2029	£42,794	£513,528
2029 - 2030	£51,439	£617,268

Most recently, the recovery plan finalised as part of the triennial valuation dated 1 April 2020 and signed off in July 2021, included a schedule for the period June 2021 to April 2046, with annual deficit repair contributions on an upwards profile starting at £199,384 in 2021 and £923,677 by the twentieth year of the plan. These show a significant increase over the previous valuation.

The sale of DFH shares

The key timeline in relation to the DFH share sale commenced with an email of 14 September 2015 from Chris Wrigley sent to his father, his brother Paul Wrigley and his sister Ann Pelgrave, with the subject “Timing”. The email read as follows:

“Hi All,

There are several things happening at the moment which I will get to below. Firstly, though, I think it is worth giving you an idea of the businesses we run. I was concerned at Paul’s comments last Xmas, whereby he stated that he preferred bonuses to be “long term”. Proctor and Gamble can afford to be long term, we don’t have that luxury. We bought DFL for £1 and the multinational who sold it to us high fived each other for getting it off their hands! Basically, it has a multimillion pound hole in its pension fund which I have simply kicked down the road for the last 7 years.

We are in trouble at the moment. I come back to Paul’s comment. We do not own Proctor and Gamble. We own businesses that sit on the edge of bankruptcy every day. We lost c£57k in July at DFL.

One of DFL’s customers spent c£6M with DFL last year and c£2M this year. It hurts.

However, there is an upside. We have virtually no borrowings against our invoice financing facility.

So, I am thinking, here is your opportunity to cash in.

There is £400k in Pink. If I can drawdown £800K from DFL I could pay you £400K each for the shares. I would have to keep it running for 20 months to get my £400k but I will take that challenge.

I am not concerned (personally) whether you go for the idea or not. Please believe me, I am not trying to take advantage and this has nothing to do with the Foils debacle. I just see an opportunity for us.

What do I see? Grandchildren who would welcome £50K+ at this time in their lives. Ann would be financially secure.

Have a think but, don’t think too long. If we lose £57K next month then we have £57K less to pay you.

I am just seeing a window of opportunity.

Regards,

Chris”

At the time of this email Paul Wrigley worked for Proctor and Gamble.
The Case Panel observes that even from a swift perusal of the email it would have been apparent that:
1. what was proposed included a sale of Paul Wrigley’s and Ann Pelgrave’s shares, with that purchase being funded by drawing down £800,000 on the Employer’s invoice financing facility; and
2. a major issue for the Employer was a multi-million pound pension deficit that was a problem that had not been addressed.
There was some exploration at the Determination Meeting of the extent to which Paul Wrigley was aware of the pension deficit and the employer’s exposure to the same. The Case Panel is satisfied that Paul Wrigley did peruse the email and was aware of the existence of a significant pension deficit and that this represented a liability for the Employer.
Ann Pelgrave sent a “reply-to-all” email the next day (15 September 2015), with a list of 7 initial concerns/queries, as follows:

“Hi Chris,

Obviously as you say we all need a bit of time to digest this but we can’t think about it forever. I’m sure Paul will give it some thought while he’s on holiday but can’t be expected to go into all the details till he’s back (Paul – when is that?)

I know we have had problems with emails being misinterpreted in the past but any comments/questions below aren’t in any way questioning you but are there because I don’t think you will have gone into this lightly and will have thought it through so you are the first person to go to for answers.
1. Why sell the shares to you rather than pay out dividends which could be paid 4 ways I know we would all get less initially but it would minimise your risk
2. I take it you are talking about buying the shares in Pink.
3. Just so everyone is clear am I right in saying Pink owns AF but not any of the other companies.
4. Pink owns the assets of AF & Tressanda does it own Discovery’s assets?
5. If you draw down 800k from invoice financing in Discovery how would you move it to you to buy the shares? If there is a connection to Pink and something happens to Discovery could RBS (the invoice financing company) seize the assets of Pink and in effect bring down AF & Tressanda.
6. My pension payment (£XXX/month) is made through Pink would this still continue afterwards?
7. This leads me to another personal point – 10 mins on the internet does not make me an expert but on a quick look you can be paid up to 40k this tax year into a pension fund tax free and if you haven’t used the allowance in previous years you can go back and use up your allowances for the previous 3 years (previous allowances were 50k/year). I get XX/year pension paid by Pink I have made the odd small additional payment (I would have to check the pension statements to get exact figures) for arguments sake lets say I have in total had XX/year paid into a pension that would leave £XXXX ((X*XX)+XX – (X*X)) that Pink could pay me tax free into a pension. Not sure if this would be a good way to take money out I would have to look into it but thought I would mention it as it could possibly be something Paul could do??

There will probably be more thoughts and questions to come but I thought I’d make a start

Regards
Ann”

Ann Pelgrave’s oral evidence was to the effect that she was travelling back from holiday on 14 September 2015 and could not recall taking advice from anyone else on the matters that had been the subject of Chris Wrigley’s email. The Case Panel therefore concludes that these were her own personal reactions to the proposal, clearly reflecting a reasonable level of sophistication and understanding of issues arising from Chris Wrigley’s proposal.
Chris Wrigley replied to that email (again by reply-to-all email) on the next day (16 September 2015), and set out answers to the questions as follows:

“Hi All,

Here I go with the answers. Please remember that these are the answers as I see them in my tiny little mind. Some might not make sense to you because I have inside info which you might not have. However, I may assume you know things that you do not. Please, just ask for clarification.

I need to make one thing absolutely clear. I do not, under any circumstances, want to do a deal thinking that I have got the better of my family. That would be simply horrible. A nasty subject, but it needs to be addressed.

So to answer Ann’s questions:
1. We could pay dividends. This is why I don’t like the idea; (I am going to treat the Trust as an individual)
  1. We would pay a vast amount of tax. Consider that we are trying to get you £360k net each. If we paid a dividend of £1.2M, that would be £300k each (me too J). After 40% tax that would be £180k each, so half what I am trying to get you and our kids. Please remember that I see a window. I do not see another window to pay out another £1.2M so my thinking is… take it whilst you can.
  2. In terms of my risk, it’s obvious that I might win or I might lose. I do not know. I am thinking about it like this. XXX XXX XXX XXXX XXXX XXXXX XXXX XXX XXX XXXXX X XXXXX XX. X XXXXXXX XXXX XXX XXXX XXXXX XXXX XX XXX XXXXX X XXXXX XX. XXX XXX XX XXX XXXX XXXXXX XXX, XX X XXXX XXXXX X XXX XXXXXXXX, XXX XXXX XX XX. X XXXXXXX XXX XXXXX XXXX XXXXX. Of course, I am making this all up because none of us are willing to talk about our financial situations with each other. I think this is wrong. XX XXXXX XXXX XXX XXXX X XXXX. XX X XXXXX XXXX XXXX XXXX XXXX XXXXX X XXXX XXXX XX XXX XXXXX XXXXXXXX XXXXXX XXXXXXX XXXXX
    
    Phew! Point 1 done, 6 to go!
2. Yes. That one was easy!
3. Yes. I’m on a roll!
4. No. Pink does not own any of DFL’s assets.
5. I would simply say to RBS “I want to drawdown £800K as a part of my payment to buy out the other shareholders” The debt would sit with DFL so, no risk to Tressanda. I should be clear though. Pink owns AF so, Pink, AF and DFL would become mine. No point in mincing words is there? You make a point here about how would the sale occur. The answer is, I think, about selling the shares with Entrepreneur’s relief. If we can’t make it work in a similar way we don’t do it. I envisage DFL buying 75% of its own shares. But that is for the professionals. DFL / AF /Pink would pick up the costs.
6. No. That would not make sense would it?
7. Can’t you just not ask so many questions!!!! Pensions is a whole new subject. But. Yes. You are correct. We should be able to pay you tax free up to your pension allowance along the lines you suggest. Just remember that you are only a whippersnapper and can’t get your hands on it for 7 years. Assuming the Government do not change the rules………. I simply cannot comment about Paul’s tax position. Is he now a resident of Azerbaijan or Guatemala?

Regards,
Chris”

Ann Pelgrave replied to that email on 17 September 2015, again by reply-to-all email, and raised further detailed points, as follows:

“Thanks Chris

I have spoken to Paul briefly he is back off holiday at the start of next week when he will try and work out his tax position. Dad is also trying to work out the Trust tax position. For everyone’s benefit do you in your mind have a time scale you are trying to work to?

Below are more comments/questions (sorry!) some need responses some are just my thoughts
1. On the ‘nasty subject that needs to be addressed’ the one thing that is fairly certain is that you wouldn’t come out with exactly the same amount but you would be the one gambling so I would expect the odds to be stacked in your favour that you come out with a little bit more otherwise why would you take the risk? We could tie it all up with a clause that if you sold within X years we would get a share of the additional profit but it would have to work both ways in that we would have to re-imburse you if you made a loss – all very complicated and I suspect the only one who would gain is the solicitors. If we don’t all trust each other there is no point in discussing this as we will never come to a decision. So moving forward on the basis that we all want to do the best for the family as a whole…………
2. I have no problem in discussing my financial situation I have been divorced and put 2 kids through uni, I have a mortgage to pay till I’m 60 and only a small pension pot. £360k will make me more secure but it will not mean I can retire tomorrow I still need an income (at present £XXX+£XX pension)
3. My question 2 was worded incorrectly I meant were the only shares you were talking about buying Pinks. I guess from your answer to 5 this is not the case.
  
  I think as it has changed on many occasions we need to make sure we are all clear about who owns what. My understanding is:
  
  We all own Pink.
  Pink
  Owns AF
  Owns the assets of AF
  Owns the assets of Tressanda
  Has a loan due from Tressanda of £106,630
  Has a debenture over Tressanda – if Tressanda closed Pink would have preferential claim over bank+debtors monies
  
  We all own Discovery Flexible Holdings (previously Fabcorp)
  Discovery Flexible Holdings
  Owns Discovery
  Used to own Flexibles building but Chris bought
  I don’t know much else about this I don’t think we see accounts but then I’m not sure it does much except protect assets?
  
  We all own Tressanda
  Again my understanding now is that after the share purchase you will own everything with the exception of Tressanda which will remain as it is.
  
  Can you confirm whether the above is right or not
4. Pink would no longer pay my pension. Tressanda can not afford an additional £XXX to pay my pension so I would loose £XX/year (don’t take that the wrong way I know I would be gaining a £360k lump sum but it’s still part of the equation)
5. Pink would have the ability to shut Tressanda down it could either call in the loan or sell it’s assets (Chris bear with me to the end of this I’m playing devils advocate at the start!). If it did I would be out of work (obviously) and we would all lose our £XXX/month rental income, we would also all have to pay a share of the rates (which may well be more than present if the property is empty – it is unlikely we would be able to rent out the premise to a third party)
  
  Why would Pink do this? The answer is the debenture Pink is unlikely to ever be repaid the loan so it’s only way to reclaim any of it is via the debenture which could get it £80k (this is a pure guess it doesn’t really matter just to illustrate). We could protect against this by moving the assets back to Tressanda and writing off the loan but that means that if anything happened to Tressanda it would all be lost from all the family. If something happened to Tressanda I for one would rather see Chris get something than none of us get anything
  
  Pink will not be a faceless entity it will be Chris and we will need to trust him with Tressanda’s assets and debenture. However we need to be aware we may have to change this if Chris sells Pink or we all sell Tressanda.
  
  While I am on Tressanda I haven’t ignored your other email I will respond but felt this was more urgent.
  
  For everyone’s info Tressanda could still go either way but next April the living wage will come in which will increase the wages for a good proportion of the staff from £6.70 to £7.20 a 7.5% increase the following November automatic enrolment for pensions will come in which will increase the payroll by a further 3%. The only way we can cover this is to increase prices we have to assume most of our suppliers will be in the same boat so the cost of all our supplies will go up too which further adds to our price increase. If XXX undercut us at this point and steal a lot of business we could be in trouble. We have to consider whether to approach XXX before then and see if they will buy us out to get total market control or whether anyone else would consider buying Tressanda. Also whether we could sell the building to a developer for houses but this would need to be in conjunction with whoever owns the attached garage. I believe we were approached about the building in the dim and distant past but I don’t know any of the details. I know this is a different topic but it needs thinking about
6. I take on board your point about if I tie money up in pension I can’t access it straight away just trying to think of different options.

Regards

Ann”

Chris Wrigley responded to this email by way of reply-to-all email on the next day, 18 September 2015 (7.00 a.m.), as follows:

“Hi Ann,

Can you just stop thinking for a bit please. I can’t keep up!

Timescale. I talked to Paul yesterday and suggested we need to do the deal by 10th Oct before the Sept results are in. I am concerned that DFL will make another loss and the bank might squeal at me drawing down £800K. I don’t think the loss will be as big as August. However, I have been awake all night worrying about whether you were going to send me a shedload more questions and came up with this plan. I don’t think Gerry will have sent the bank the August figures yet so, when I have finished this email I am going to tell him to draw down £800K and pay it back to Pink. So there will be your £1.2M ring fenced. It can be undone if we wish. I will tell Gerry and Jimmy exactly why I am doing it. I need to treat them with respect.
1. Forget your whole point. Get some rest girl! I do not know and I do not care who will come off best. The only point is give the kids a leg up and help you towards financial independence.
2. Point taken. That’s why you will still have Tressanda.
3. I think my point 5 was clear. Ask me if it isn’t. Your understanding of who owns what is correct. I think you must see Discovery Holdings accounts. Don’t you sign them off as Company Secretary? Your understanding of the post acquisition position is also correct.
4. Yes. You need to factor in your monthly pension payment. Just set up a S/O at Tressanda and somehow you will make it happen. Life is funny that way.
5. You are right. Pink could shut down Tressanda. It could also shoot itself in the foot. I can’t think why it would do either. I think Tressanda is responsible for the rates. If it falls to us as owners just tap it with a hammer and it will probably fall down anyway.
  
  It is wise for Tressanda to not own it’s fixed assets. You know why. My advice would be to just leave it as it is.
  
  I can’t sell Pink. There is nothing anyone would want to buy.
  
  Living wage costs are the same for all Companies so you should be OK. However, if you could get XXX to pay us a million for Tressanda that really would make you financially independent. Give it a go.
  
  Look around Tressanda. If you want to develop it the property to have is the pub.
6. I think your pension idea is excellent. £162k in your pension and £214k in your pocket makes sense.

Regards,

Chris”

Chris Wrigley instructed the drawdown that morning as he said he would in the above email. At 07:06 a.m. on 18 September 2015 Chris Wrigley wrote an email to Gerry Kelly in the following terms: “Gerry, Please would you draw down £800K and pay it to Pink. You have the bank details from the monthly invoices. I am trying to buy out the other shareholders.” Gerry Kelly responded at 08:27 a.m. that morning to say that: “The drawdown is complete and I now await the funds reaching our current account. My upper limit for payment approval is £99,999 – I can prepare several transfers to Pink to make up the £800k or 1 payment and you can approve. Let me know your preferred option”. Chris Wrigley went for the latter option.
There were then further emails and discussions that subsequently led to David Newborough of Ashgates Corporate Services (“Ashgates”) being asked to advise on certain matters relating to the proposed transaction. This led to a lengthy email of 12 October 2015 which he sent to Chris Wrigley, Ann Pelgrave, Paul Wrigley and XXX XXXXXXX
1. That email included the following:
  
  “Introduction
  - The headline of the agreement between you as family members and shareholders is that each of you will sell your shareholding in both Discovery Flexible Holdings Ltd and Pink Printers Ltd and will receive £400,000 consideration. The position in Pink, however is the position after the assets connected with Tressanda Ltd (i.e. the fixed assets used in Tressanda’s business and the debtor money owed from Tressanda) are moved into a business where all shareholders still have an interest.
  - You have made it clear no advice is required in relation to the deal agreed between you in terms of negotiating the terms of the deal or the consideration.
  - You have asked for advice in relation to options for how to effect the transactions and the tax implications for the individuals, including consideration of any suggestions or ideas that may adjust the tax position.
  - For Clarity, Chris and Ann are clients of Ashgates personally in relation to their tax affairs, but XXX, XXXXX, Paul nor any Trusts are clients of Ashgates at present so we would only be able to give advice in their respect if they were formally engaged and all background relevant tax information was provided. However, we are able to provide generic comments regarding taxation of transactions.
  - Also for clarity, A F Reprographics Ltd is wholly owned by Pink Printers Ltd, and Discovery Flexibles Ltd is wholly owned by Discovery Flexibles Holdings Ltd, so the ownership of both those subsidiaries would move to Chris via the transactions outlined above.”
2. The email then sets out a lengthy and detailed analysis of the options for taking forward the transaction.
Later that same day, 12 October 2015, Chris Wrigley sent by way of email to XXX XXXXXXX, Ann Pelgrave and Paul Wrigley his thoughts on what were described in Ashgates’ email as the “Key decisions”. Ann Pelgrave then added her comments by an email of the next day, 13 October 2015. One of the themes of those comments was whether it would be possible to delay the transaction by 12 months for reasons concerned with Capital Gains Tax and/or at least one of the transactions until after 6 April 2016 to put it into the next tax year. Chris Wrigley expressed the view that 12 months would be “too long to wait due to the significant chance that some or all of the money held in Pink for the transaction may have to be transferred back to Flexibles for working capital” and also that for the same reason waiting until 6 April 2016 would be too long because “that exposes the Pink sale to Flexibles working capital requirements again because Pink owes Flexibles £800K”.
On 24 October 2015, Paul Wrigley replied to all on the email string, which had included the comments from Chris Wrigley and Ann Pelgrave on Ashgates’ advice, as follows:

“Hi all,

Just to add a couple of comments to the below

Firstly, I am fully resident in XXXXXXXXXXX for tax purposes, so unless the UK taxman deducts something at source, I would pay tax in XXXXXXXXXXX under XXXXX tax rules (which are of course very different to UK).

For that reason, and because I would need P&G’s permission (unlikely), I don’t think there’s an option for me of becoming a director, waiting 12 months, and then paying less tax (the first point in David’s message).

Beyond that the remaining questions seem to surround the Trust. Dad has commented to me recently that the situation with the Trust has become much more complicated since it was set up due to changes in tax law. I think there may also still a question to resolve as to when the trust can pay out to the grandchildren. It may therefore be worth at least exploring if there is a way to make the sale and pass the proceeds to the grandchildren outside of the Trust, with of course all of the provisos Ann makes below.

For the next two weeks we are (for once) reasonably static here in XXXXXX so I could readily do a conference call at any time, if we all want to talk anything together once Mum & Dad are back from holiday.

Love to all
Paul”
It is reasonable to conclude from reading the above email that Paul had reviewed the emails that had come before, including the “points” made in them, even if only briefly, seeking to identify whether he had anything “to add”, and whether he had any comments in relation to the “remaining questions”.
A couple of days later, on 26 October 2015, Chris Wrigley forwarded the string of emails containing the family members’ comments to David Newborough of Ashgates, copying in Paul Wrigley, Ann Pelgrave and XXX XXXXXXX as follows:

“Hi David,

Below are everyone’s comments on your email of 12/10. I decided to send you the full text so there are no misunderstandings.

I spoke to my Dad (XXX) this morning. He adds that he would like you to run your ideas past XXXXXX at XXXXX. He considers her a tax expert and would like the comfort of a second opinion.

There have been a couple of phone conversations too but, basically:

The shareholders would like to complete the deal as quickly as possible, paying as little tax as possible but are averse to being challenged by HMRC. There is no appetite for waiting 12 months and incorporating new directors. There appears to be a preference to do the deal now rather than over 2 tax years due to the uncertainty of funds availability in the future.

Regards,
Chris”
The next day, on 27 October 2015, David Newborough of Ashgates sent a further detailed reply by way of a reply-to-all email. On 29 October 2015, David Newborough sent a further email on the matter, again to the same group of people. This included a tax solution based on the parents’ shares being sold and the proceeds being subsequently transferred to the grandchildren (but without any obligation for the proceeds so to be transferred).
Then on 30 October 2015, David Newborough sent a more formal advisory email. This advisory email clearly sought to achieve two things. First, it sought to define with greater clarity what Ashgates was and was not advising on. It recommended that those involved take legal advice “to cover the legal and risk implications for the buyers and sellers individually” but made clear that Ashgates was not providing that advice. Secondly, it set out the proposed way forward and asked for any comments on and/or sign-off of that way forward. The proposed approach to the transaction set out in that email was as follows:

“I will be grateful for any comments now on whether you wish to move forward with the following actions, or any queries that you may still have:
1. Pink sells the assets that it owns that are used by Tressanda Ltd to a Newco that is owned by all of the family members in the same shareholding allocation as Pink currently is [….]
2. The loan balance between Pink and Tressanda is formally written off by way of board meeting minutes
3. We undertake a valuation exercise to consider whether a total value of £1.6m for Pink and Flexibles Holdings combined value (after the above changes to Pink position) is likely to have any issues if challenged by HMRC as not a true market value
4. We provide the advice letters to the companies based on the structure of the deal (I.e. the formalising some of the comments already in the emails) and the valuation
5. We provide advice letters to Chris and Ann regarding their personal tax implications of the transactions
6. XXX & XXXXX XXXX XXXXX XXXXXX XXXX XXXXXX
7. Paul takes advice as he sees fit
8. Assuming the above is all satisfactory, XXX & XXXXX gift their shares to Chris, Ann & Paul and holdover the capital gain
9. Newco(s) are formed and acquire the entire shareholdings of [Pink] and Flexibles Holdings Ltd (or Ash 126 could perhaps be used?)
10. Chris, Ann and Paul consider whether they wish to make any gifts to their children of their proceeds.”
Then on 2 November 2015, Chris Wrigley replied to that email with a reply-to-all email as follows:

“Hi David,
All the shareholders have agreed your proposals as set out below. Please proceed.
Regards,
Chris”
There were subsequently further detailed emails about the particular structure of the transaction but the Case Panel does not consider it necessary to include the further reference to those in this Determination Notice.
On 11 December 2015, David Newborough of Ashgates sent an email to Chris Wrigley, Ann Pelgrave, Paul Wrigley and XXX XXXXXXX as follows:

“Hi all,

Further to our engagement letter and all the email chains regarding the structure, I now attach a copy of our advice letter to the companies for completeness. There is nothing new in the letter but it formalises the position. As noted in the letter we have now approached HMRC for pre transaction clearance to give additional assurance as to the tax treatment.

I will let you know as soon as we receive a reply from HMRC, although with Christmas on the horizon my expectation is that the transactions will most likely be ready to complete at the beginning of January.

Our valuation reports are almost complete and we should be issuing these early next week.

If you have any queries please don’t hesitate to let me know.

Kind regards,
David Newborough”
The advisory letter referred to in, and attached to, that email was a letter of 9 December 2015. This advisory letter included the following:

“It is proposed that a Newco or perhaps Ash 126 Ltd is used to acquire 100% of the share capital of Pink and that a separate Newco is used to acquire 100% of the share capital of DFH. The funds for the transaction are being borrowing [sic] from the current cash flow of Pink and Discovery Flexibles Ltd… The borrowing can be cleared by dividend up through the group but it can be left as an ongoing balance if keeping the asset value of the companies lower down the group is important. As long as there are sufficient reserves that the balance could be cleared if the Directors chose to do so then there is no problem with the loan remaining outstanding between the group companies.”.
Paul Wrigley responded to the email including the attachment with a reply-to-all email of 15 December 2015, as follows:

“David,
Thanks. I think this summarises what I had understood from the various e-Mail exchanges.
Best regards
Paul”
In the absence of compelling evidence to the contrary, the obvious inference from this email is that Paul Wrigley had read the letter dated 9 December 2015 and formed the view that this suitably summarised what he had taken to be the case from the previous related email exchanges.
Later, on 23 December 2015, David Newborough of Ashgates sent to Chris Wrigley and Ann Pelgrave, copying in XXX XXXXXXX and Paul Wrigley, an email attaching the valuation letter referred to in his 11 December 2015 email, which made requests for certain information for a submission to HMRC. It also included the following opening paragraph:

“Please find attached the valuation letter in accordance with our engagement letter with the companies. I should say that we do not anticipate HMRC challenging the valuation, but we are obliged to point out the risk that it is possible. The valuation report has been signed off by my colleague that has significant experience in this area, and the conclusion is that the valuation is at the very top end of the range due to the pension deficit. Therefore if it were challenged by HMRC we would fight to defend the valuations and may succeed, but we are not able to put our assurance behind the higher figure due to the risk of HMRC concluding the pension risks give a lower valuation.”
The required information was subsequently provided.
The valuation letter was dated 22 December 2015. Relevant extracts from that letter are set out below:
1. Under the heading “Discovery Flexibles Holdings Ltd (Incorporating Discovery Flexibles Ltd)” it included the following information on the pension scheme deficit:
  
  “The company has a defined pension benefits scheme. Per the audited 31 July 2014 accounts, the scheme had a deficit of £1,590,000.
  
  We have received the FRS17 Actuary report, prepared by JLT Benefit Solutions Ltd showing the scheme position as at 31 July 2015. The report shows a scheme deficit of £4,182,000, an increase in the deficit £2,592,000.
  
  However, management have indicated they believe the assumptions in this report are unreasonable. Whilst the actuary has prepared illustrative figures using a more beneficial discount rate, under these assumptions the deficit is £1,735,000, however they have stated this would be hard to justify.
  
  Given the signed report shows a deficit of £4,182,000, this is the figure that we have had to use in our valuation.”
2. Under the heading of Valuation of the Companies, Ashgates expressed a view that the valuation of Pink Printers Ltd could be £425,000 to £475,000. It then turned to DFH and said this:
  
  “After consideration the value of 100% of Discovery Flexibles Holdings Ltd (incorporating its wholly owned subsidiary Discovery Flexibles Ltd), in our opinion:
  
  The company is valued at between £1 and £1,200,000.
  
  The company is very difficult to value given the uncertainty of the amount and timing of the pension deficit.
  
  In terms of a value that we believe we could defend if HMRC were to investigate the value you have agreed would be in the region of £500,000. This would give a combined valuation of Pink Printers Ltd and Discovery Flexibles Holdings Ltd and their respective subsidiaries of between £925,000 and 975,000.
  
  The companies have agreed a sales price of £1,600,000 for both Pink Printers Ltd and Discovery Flexibles Holdings Ltd and their respective subsidiaries, we believe this would be right at the top end of a valuation. In order to argue a £1,200,000 valuation of Discovery Flexibles Holdings Ltd, the company would have to prove that the pension deficit is highly unlikely to crystallise….”
So far as the relevant purchase by Ash 160 Ltd of the shares of Paul Wrigley and Ann Pelgrave are concerned the transaction details were set out in a table dated 11 March 2016 as follows:

Table 4: Transaction details as at 11 March 2016

Vendor	Sale Shares in DFH	Cash
…	-	-
E A Hartley	25 Ord £1 C	£273,058.32
E A Hartley	8 Ord £1 A	£87,378.68
Total Consideration		£360,437.00
R P Wrigley	25 Ord £1 C	£273,058.32
RP Wrigley	8 Ord £1 A	£87,378.68
Total Consideration		£360,437.00

“E A Hartley” was a name by earlier marriage of Ann Pelgrave. The “8 Ord £1 A” shares were those that were gifted by the parents as part of the process and the understanding was that following receipt of the cash for those shares Ann Pelgrave and Paul Wrigley would pass on those sums to their children. The above is separate to the sums received by Ann Pelgrave and Paul Wrigley for their sales in Pink Printers Ltd, which transaction concluded at around the same time.
The sums of £360,437 were received in exchange for the shares, as planned. The available evidence was not conclusive as to when these sums were received by each of Paul Wrigley and Ann Pelgrave, but the Case Panel considers the reasonable course on the evidence to be to treat the sums as having been received on 1 April 2016.

Statutory tests under section 38

Section 38 is customarily described as imposing five tests or conditions for the issue of a CN to a given proposed target of regulatory action.

Statutory tests: Scheme test and Connection test

The first two of these tests are:
1. That the scheme in question is an occupational pension scheme other than a money purchase scheme or a prescribed scheme or a scheme of a prescribed description (section 38(1)), the “Scheme test”.
2. That the target was at any time during the relevant period (as defined in section 38) either the employer or a person connected with, or an associate of, the employer (section 38(3)(b)(ii)), the “Connection test”.
It is common ground on the facts of this case that the Scheme test is met. The Case Panel is satisfied that the Scheme test is met, noting the case and documentary evidence set out in the Warning Notice.
It is also common ground that the Connection test is met in respect of each of Paul Wrigley and Ann Pelgrave. The Case Panel is satisfied that the Connection test is met, having regard to the case set out in the Warning Notice. Ann Pelgrave was a director of the Employer at a time during the relevant period and Paul Wrigley was a brother of a director.

Statutory tests: Party test and Act test

The next two of the five tests relate to the “Act” relied on for the purposes of the proposed regulatory action. They are:
1. First, that TPR is of the opinion that the target was a party to the Act, the “Party test”; and
2. Secondly, that TPR is of the opinion that the Act falls within section 38(5) PA 04, the “Act test”.
There was some debate at the Determination Meeting as to the precise definition of the act relied on by the Case Team in relation to the sale of DFH shares. The Case Panel considers that a formulation of the act that captures the essence of the case pursued is: “the sale and purchase of DFH shares using funds drawn down on the Employer’s invoice financing facility”. This single composite act is referred to in the remainder of this Determination Notice as the “DFH Share Sale Act”.
Accordingly, the Party test can be reformulated, in relation to Paul Wrigley and Ann Pelgrave, as follows: was each individual a party to the DFH Share Sale Act? Each of Paul Wrigley and Ann Pelgrave disputes that the Party test is met in relation to them. This is addressed below in the section headed “The Party test”.
In relation to the Act test:
1. As to the requirement under section 38(5)(a) PA 04, the Case Team’s case is based on the “material detriment test” as defined in section 38A(1) PA 04;
2. As to the requirement under section 38(5)(b) PA 04, it is common ground that this timing requirement is met, given that the DFH Share Sale Act occurred after 27 April 2004 and before any assumption of responsibility for the Scheme by the PPF; and
3. As to the requirement under section 38(5)(c) PA 04, it is common ground that this further timing requirement is met, and the Case Panel agrees since the DFH Share Sale Act occurred within the period of six years ending with the giving of the Warning Notice.
For completeness it is also noted that no party sought to rely on the statutory defence set out in section 38B PA 04, and no further reference is made to section 38B PA 04 in this Determination Notice.
Accordingly, the Act test boils down on the facts of this case to: is the material detriment test met in relation to the DFH Share Sale Act? This is addressed below in the section headed “The Act test”.

Statutory tests: Reasonableness test

The last of the five tests is: that TPR is of the opinion that it is reasonable to impose liability on the target to pay the sum specified in the CN (section 38(3)(d)). This is addressed in the section below headed “The Reasonableness test”.

The Party test

In terms of the legal test to be applied in relation to the Party test, the Case Panel accepts the Case Team’s submission that the question of whether a person was “a party to an act” for the purposes of section 38(3)(a) is to be addressed as a matter of ordinary English language. In this connection the Case Team observed in its Position Statement that:

“The Oxford English Dictionary includes in its definitions of “party”: “a person who takes part or is implicated in a specified deed, event or matter. Foll by to”. The Cambridge Dictionary defines being “party to” something as being “involved” in it.”
Accepting that a common-sense approach is required, the Case Panel notes that: Paul Wrigley and Ann Pelgrave each sold shares and received significant sums pursuant to the share sale and purchase; they each approved the transaction as described in the email of 30 October 2015 (as evidenced by the email of 2 November 2015); they were both told (as evidenced by the emails set out above) that the funds used for the purposes of the purchase were derived from a drawdown by the Employer of £800,000 from its invoice financing facility; and they each had the opportunity to refuse to proceed with the transaction but chose to carry on with it.
In those circumstances, the Case Panel is satisfied that each of Paul Wrigley and Ann Pelgrave was a party to the DFH Share Sale Act.
On behalf of Paul Wrigley two particular submissions were made in connection with the Party test that should be addressed.
First, it was suggested that Paul Wrigley was not aware of the details of the way in which the payment of the purchase price for the shares was being funded, in circumstances where he was busy with other things (including an important holiday and consuming job) and regarded the way in which the share purchase was funded as a matter for the buyer with which he need not (as seller) concern himself. It was specifically submitted in closing that the Case Team was wrong to say that Paul Wrigley knew that “£800,000 was drawn from an RBS facility held by the employer and immediately paid to Pink”. As to this submission:
1. The Case Panel does not accept, on the available evidence, that Paul Wrigley did not at the time take cognizance of the fact that the DFH share purchase was funded through a drawdown by the Employer using its own financing facility. It was clear from the email exchanges to which he was party (including, for example, the email from Chris Wrigley of 18 September 2015 quoted at paragraph 39 above) that that was the plan, and sufficiently clear that it would have been apparent on even a cursory perusal of the relevant emails (and it was not suggested by Paul Wrigley that he did not at least give them a cursory perusal). Given Paul Wrigley’s obvious commercial competence, it would take clear and compelling evidence to persuade the Case Panel to conclude that Paul Wrigley never took cognizance of this fact during the process of the DFH share sale. But far from giving clear and compelling evidence to that effect, Paul Wrigley found himself during cross-examination distancing himself from critical passages of his first witness statement relating to the topic. In responding to questions on his written evidence, Paul Wrigley said
  
  “I’m not sure to what extent that was me reading the emails in 2021 as opposed to how I was handling them in 2015. I don’t remember how I handled them in 2015”.
2. Secondly, the Case Panel is not persuaded that in order to be a party to the DFH Share Sale Act Paul Wrigley would need to have taken cognizance of how the share purchase was funded. Even on the footing that Paul Wrigley did not register how the share purchase was to be funded, he was plainly sent emails which communicated these facts and to that extent he was, at the very least, and whatever his subjective focus or state of mind, on notice of that fact. If and insofar as there is need for some such “notice” (a matter which the Case Panel does not consider it necessary to decide) there has on the facts of this case been such “notice”.
Secondly, a submission was made in connection with section 38(6)(a) PA 04. This section provides that “the parties to an act… include those persons who knowingly assist in the act…”. It was common ground before the Case Panel (in the Case Panel’s view correctly in view of the non-exhaustive word “include”) that this is a deeming/permissive provision, rather than a provision that purports itself to define the concept of being “a party to”. However, it was submitted in addition that the provision at least shows that where reliance is placed (in the context of the Party test) on a person’s assistance in an act, it is only knowing assistance that will enable a conclusion to be reached that the person is a party to that act. The Case Panel does not consider it necessary to consider that submission further since its conclusion is not based or reliant on a finding that Paul Wrigley and Ann Pelgrave are correctly characterised as having “assisted” in the DFH Share Sale Act: see paragraphs 71 to 73 above.
On behalf of Ann Pelgrave, two particular submissions were made in connection with the Party test that should be addressed.
First, it was submitted that it would be wrong for significant reliance to be placed on Ann Pelgrave’s role as a director (of either the Employer or DFH) in this context, because she was (to use a term deployed on her behalf) a “paper-only” director. This submission was made in circumstances where the Case Team referred to and relied on case law relating to suitability to act in the directors’ disqualification context. However, in reaching its conclusion that Ann Pelgrave was a party to the DFH Share Sale Act the Case Panel has not considered it necessary to rely on the fact that she was a director of the Employer or DFH.
Secondly, attention was drawn to the fact that the act of drawdown itself was directed by email of 18 September 2015 just 6 minutes after Chris Wrigley had said he would be directing the same and that this did not realistically give Ann Pelgrave a reasonable opportunity to intervene before the drawdown was effected. This is a perfectly correct factual observation. However, the Case Panel does not consider that it assists in relation to the key question at issue – which is whether Ann Pelgrave was party to the DFH Share Sale Act. Ann Pelgrave candidly accepted that she was fully aware that the purchase was funded by the Employer’s drawdown; the fact that the drawdown on the facility had been effected without her prior involvement does not speak against the conclusion that she was party to the DFH Share Sale Act.

The Act test

As noted at paragraph 69 above, the Act test boils down, in this case, to whether the material detriment test is met in relation to the DFH Share Sale Act.
Pursuant to section 38A(1), the material detriment test is met in relation to the DFH Share Sale Act if “the Regulator is of the opinion that [the DFH Share Sale Act] has detrimentally affected in a material way the likelihood of accrued scheme benefits being received….”. For these purposes the reference to accrued scheme benefits being received is a reference to benefits the rights to which have accrued by the time of the DFH Share Sale Act: see section 38A(2)-(3) PA 04.
Section 38A(4) provides guidance as to how the material detriment test is to be approached, as follows:

“In deciding for the purposes of section 38 whether the material detriment test is met in relation to an act or failure, the Regulator must have regard to such matters as it considers relevant, including (where relevant)–
1. the value of the assets or liabilities of the scheme…
2. the effect of the act or failure on the value of those assets or liabilities,
3. the scheme obligations [as defined in section 38A(5) PA 04] of any person,
4. the effect of the act or failure on any of those obligations (including whether the act or failure causes the country or territory in which any of those obligations would fall to be enforced to be different),
5. the extent to which any person is likely to be able to discharge any scheme obligation in any circumstances (including in the event of insolvency or bankruptcy),
6. the extent to which the act or failure has affected, or might affect, the extent to which any person is likely to be able to do as mentioned in paragraph (e)…
7. such other matters as may be prescribed [no such matters have been prescribed].”
Section 38A(4) provides a non-exhaustive non-mandatory list of matters that, where relevant, can assist the Case Panel in deciding whether the material detriment test is met. As the Case Team noted, these matters can be grouped into three pairs: the first pair concerned with the funding position of the relevant scheme; the second pair concerned with the content, nature and enforceability of scheme obligations; the third pair concerned with the ability to perform those obligations (most obviously: the ability of the relevant employer to make the payments required of it under any contribution rule, Part 3 PA 04 or otherwise).
In this case the Case Team places particular reliance on factor (f) under section 38A(4) PA 04 – namely on the extent to which the DFH Share Sale Act has affected or might affect the extent to which the Employer is likely to be able to discharge any of its obligations to the Scheme in any circumstances.
The Case Panel understands the Case Team’s case to be, in short, that the DFH Share Sale Act has affected or might affect the extent to which the Employer is likely to be able to meet its scheme obligations (including its deficit repair contributions), and that this effect is sufficient to mean, on the facts of this case, that the use of the drawdown in that way has detrimentally affected in a material way the likelihood of accrued scheme benefits being received.
The starting point is that the Case Team bears the burden of persuading the Case Panel to reach the conclusion that the material detriment test is met. In section 38 CN cases that have come before the Case Panel to date, the material detriment test has been applied in a context which has involved an insolvent employer. In this case, however, there is an ongoing scheme with an ongoing employer, with the prospect of ongoing support being provided and updated on a triennial basis in a way that is sensitive to the prevailing conditions and financial circumstances of the Employer.
In determining whether the material detriment test is met in this case the Case Panel considers it important to assess this issue in the context of the funding position of the Scheme. Relevant information provided to the Case Panel in this regard was as follows:
1. At the time of the DFH Share Sale Act the latest triennial valuation had valuation date 1 April 2014. In that valuation the assets were recorded as having value of £20.6m. The identified deficits were: £4.4m (technical provisions), £8.8m (PPF), and £26.4m (buy-out).
2. Under that 2014 valuation, the Schedule of Contributions required deficit repair contributions over a 15-year recovery plan, with the annualised contributions starting at approximately £90k and rising to over £600k.
3. The most recent triennial valuation of which the Case Panel was informed has a valuation date of 1 April 2020. This identified assets of £22.8m and a technical provisions deficit of £19.6m, a PPF deficit of £17.0m and a buy-out deficit of £24.8m.
4. Under the 2020 valuation, the recovery plan runs to 2046, with the first annualised deficit repair payment being in the region of £200k, and then an upwards profile so that by the twentieth year the annual deficit repair contributions required are over £900k.
It is also relevant, where reliance is placed on the Employer’s prospective ability to meet its scheme obligations, to take into account basic facts as to the overall financial circumstances of the Employer. In this regard, the most recently available covenant assessment describes the strength of the covenant as “weak”, consistent with the extremely long recovery plan in place. Furthermore:
1. The filed accounts for the Employer most closely contemporaneous with the DFH Share Sale Act are those filed for the period ending 31 July 2016. These show net assets of £6,610,476. But this figure includes a deferred tax asset of £3,464,526 which is (assessed as of 2016) illiquid and highly dependent on future profitability. Net assets also include £800,000 in respect of the original loan, against which no provision has been made despite it having been outstanding for seven years and an absence of consideration as to how the owners would repay it. The £800,000 drawdown required in order to fund the acquisition therefore amounts to 34.1%, 25.4% or 12.1% of the net assets (depending on what approach is taken in relation to the deferred tax asset and recoverability of the loan).
2. In relation to the £800,000 drawdown on the invoice financing facility, the Case Panel notes from the financial statements made available to it that at least £800,000 has remained outstanding over the period since the £800,000 drawdown:
  
  Table 5: Invoice financing facility

Reference	Outstanding borrowing on invoice financing facilities	Note reference to relevant accounts
31 Dec 2015	£0	Note 13
31 Dec 2016	£991,602	Note 17
31 Dec 2017	£1,311,852	Note 17
31 Dec 2018	£1,900,335	Note 21
31 Dec 2019	£1,747,599	Note 22
31 Dec 2020	£1,221,316	Note 23
31 Dec 2021	£1,366,168	Note 23
31 Dec 2022	£1,080,122	Note 22

1. The Case Panel has also considered the net asset position in the most recently filed accounts for the Employer filed for the year ended 31 December 2022. These state net assets of £6,091,677 (including deferred tax assets and loan but excluding the pension liability), and state net assets (after taking into account the pension liability) of £866,677. Again, £800,000 represents a significant proportion of these figures.
Against those background facts it is necessary to consider the effect of the £800,000 being used for the share sale rather than being available (either directly or via a subsequent drawdown) for other Employer purposes. In considering that question, the Case Panel assumes that any use made of that sum and/or the facility would have been in accordance with the directors’ duties and reasonable including having regard to the interests of the Scheme (footnote 1).
Taking account of the matters set out above, it is plain that the DFH Share Sale Act was a highly significant matter from the perspective of the Employer. The purchase price was funded from a liability assumed by the Employer which was deprived of the corresponding cash benefit derived from drawing down that facility. Three arguments were raised against the proposition that this had a negative impact on the ability of the Employer to meet its scheme obligations and therefore a negative impact on the security of Scheme benefits, but in the Case Panel’s view none of those arguments has merit:
1. It had been suggested by Chris Wrigley that the use of the drawdown did not cause any detriment to the Employer, but rather caused significant benefit, because putting the Employer into the effective 100% ownership of Chris Wrigley enabled the Employer to take steps that would not otherwise have been possible. There was simply no evidence before the Case Panel that would enable it to reach that conclusion. Indeed, both Paul Wrigley and Ann Pelgrave positively confirmed in evidence that they did not seek to interfere with the business while shareholders and there was no basis in the evidence to suggest that their parents were meddling in any way that interfered with Chris Wrigley’s ability to pursue the business decisions he considered important for the business.
2. It was suggested that the £800,000 could not have been used for any purpose other than the DFH share sale and therefore that the use for that purpose did not have any negative effect. However, the Case Panel considers that whether the £800,000 would have to have been paid back to RBS, or could have been used for working capital purposes without being paid back (in accordance with the purpose of the facility, being that funds drawn down be used for working capital purposes), the Employer would have been in a stronger position had the £800,000 not been used for the purpose of the DFH share transaction. In submissions a fair degree of focus was placed on the issue of approval by RBS of the use of the drawdown for acquisitions (and the share transaction), but that seems to the Case Panel to be something of a red-herring in circumstances where the relevance of any such approval would have been overtaken had the share sale transaction not proceeded, and in a context where the invoice financing facility was expressly intended (as the Case Panel was shown) for the Employer’s working capital purposes.
3. It was also suggested that there would or will have been no detriment if the £800,000 initially lent to Pink Printers Ltd had been or were to be repaid, and that there is no reason to exclude the possibility that DFG (the entity to whom the burden of the debt has been transferred) will in future repay the £800,000 to the Employer. However, it seems to the Case Panel that any possibility of the £800,000 being repaid to the Employer through any means that do not involve the use of the Employer’s own resources (e.g. through the payment of dividends up through DFH to DFG) is speculative only.
However, the foregoing considerations do not themselves answer the question whether the impact on the ability of the Employer to meet its scheme obligations is such as to have detrimentally affected in a material way the likelihood of accrued scheme benefits being received. This is not a case where, for example, it is clear to what particular use the £800,000 would have been put, or where, for example, detailed expert covenant analysis has been presented on the impact of the drawdown on covenant strength. Nor is the Case Panel being invited to reach conclusions as to a specific impact that the availability of £800,000 would have had on contributions paid to the Scheme to date and/or schedules of contributions agreed at subsequent triennial valuations.
At the Determination Meeting the Case Team placed weight on three particular points in support of the contention that the DFH Share Sale Act detrimentally affected in a material way the likelihood of accrued scheme benefits being received:
1. First, reliance was placed on the comparison of the £800,000 with the net asset position of the Employer. The Case Panel considers that this is a significant comparison, bearing in mind also the deficit in the Scheme.
2. Secondly, reliance was placed on a comparison between the £800,000 with the contributions payable under the schedule of contributions. In particular a comparison was made between the £800,000 and the annual contributions required at around 2015-16 of £90,000. This seems to the Case Panel to be a valid and useful comparison indicative of materiality, albeit that it is also to be noted that the recovery plan then in place had an upwards slope profile, so that over time the deficit repair contributions were anticipated to become significantly bigger.
3. Thirdly, the Case Team referred to a metric which compares the sum of £800,000 with the total annual pension bill. The Case Team drew attention to the fact that at 31 March 2020 the total pension amount being paid from the scheme was £962,384 per annum, which was being paid to 137 pensioners. The Case Panel noted that £800,000 represents 83% of the Scheme’s then current annual pensions bill but has not found that a particularly helpful metric or indicator.
In addition to the foregoing, the following seem to the Case Panel to be points of some significance:
1. First, the threshold to be met is only that the likelihood of accrued scheme benefits being paid is detrimentally affected “in a material way”. The threshold of materiality is one that rules out trivial effects, but the Case Panel considers that any effect of substance is caught.
2. Secondly, if one stands back, the Employer can only be in a worse position to meet scheme obligations than it would have been if £800,000 less were drawn down. Given the size of the deficit and length of the recovery plan the Case Panel considers this to be a material impact on the support for the Scheme and for the prospects of the accrued scheme benefits being received.
3. Thirdly, there is in place a very long deficit repair plan and there is an Employer assessed (on the latest information made available to the Case Panel) as having a weak covenant. In those circumstances it is reasonable to conclude that a significant using up of its financial resources (in the amount of £800,000) is a matter of materiality so far as the security of the Scheme is concerned. The use of the £800,000 for the purposes of the share sale has reduced the buffer in the covenant available to assist the Employer to address adverse experience or agree a shorter recovery plan.
4. Fourthly, though it is not necessary to reach any conclusions as to what specifically would have been done with the £800,000 had the DFH Share Sale Act been cancelled, it is to be noted that a responsible and reasonable approach to the Scheme, in circumstances where the £800,000 was not used for the share purchases, or where there was £800,000 less drawdown on the invoice discounting facility (following a return of the £800,000), could have materially benefitted the Scheme as compared with what in fact took place. For instance, the Employer could have afforded to make smaller requests for, or to reimburse the Scheme for, assistance in relation to the PPF levy.
Having regard to the above and all the available information, the Case Panel has reached the conclusion that the material detriment test is met in relation to the DFH Share Sale Act.

Footnote for this section

[1] Consistent with the principle adopted in the Meghraj Determination Notice at [222].

The Reasonableness test

The final test to consider is the Reasonableness test. This requires consideration not only of whether it is reasonable to issue a CN at all but also of the sum of liability it is reasonable to impose. As stated above, the amount of the CNs sought by the Case Team in relation to each of Paul Wrigley and Ann Pelgrave separately is £360,437, plus an adjustment for the passage of time.
There is a statutory cap on the sum that can be imposed by way of liability, defined as the “shortfall sum” under section 39(1) PA 04. The sums of liability that the Case Team seek to impose in this case are such that there is no realistic prospect of that cap being engaged. Nonetheless, it is appropriate in circumstances where a passage of time adjustment is being imposed that the Case Panel form a view as to the shortfall sum. The Case Team in effect suggested in the Warning Notice a conservative approach (i.e. an approach on which a sum was identified that was safely below the relevant valuations). On this approach the figure of £5 million was identified. No dispute was raised about that approach. Therefore the Case Panel adopts the shortfall sum of £5 million.
Section 38(3) (as in force for relevant purposes) provides that a CN may only be issued if:

“(d) the Regulator is of the opinion that it is reasonable to impose liability on the person to pay the sum specified in the notice, having regard to-
1. the extent to which, in all the circumstances of the case, it was reasonable for the person to act, or fail to act, in the way that the person did, and
2. such other matters as the Regulator considers relevant, including (where relevant) the matters falling within subsection (7).”
The matters listed within section 38(7) (in the form in force for relevant purposes) are the following:

“(a) the degree of involvement of the person in the act or failure to act which falls within subsection (5),

(b) the relationship which the person has or has had with the employer (including, where the employer is a company within the meaning of subsection (11) of section 435 of the Insolvency Act 1986 (c. 45), whether the person has or has had control of the employer within the meaning of subsection (10) of that section),

(c) any connection or involvement which the person has or has had with the scheme,

(d) if the act or failure to act was a notifiable event for the purposes of section 69 (duty to notify the Regulator of certain events), any failure by the person to comply with any obligation imposed on the person by subsection (1) of that section to give the Regulator notice of the event,

(e) all the purposes of the act or failure to act (including whether a purpose of the act or failure was to prevent or limit loss of employment),

(ea) the value of any benefits which directly or indirectly the person receives, or is entitled to receive, from the employer or under the scheme;

(eb) the likelihood of relevant creditors being paid and the extent to which they are likely to be paid;

(f) the financial circumstances of the person…”
On the facts of this case the Case Panel finds it convenient to break the analysis down into the following steps, in respect of each of Paul Wrigley and Ann Pelgrave:
1. Is it reasonable to issue a CN?
2. If so, what sum is it reasonable to impose as of March/April 2016?
3. Having identified that sum, is it reasonable to impose any additional sum by way of adjustment to reflect the passage of time since then, and if so what additional sum?
4. Standing back, does the outcome reached reflect a reasonable outcome and does it respect the shortfall sum cap?
The final step in this process is important as ultimately the question is whether it is reasonable to impose liability to pay the sum specified in the CN.

Is it reasonable to issue a CN?

On the facts as they have been set out above and as further elaborated below, and having concluded that the Party test and Act test is met, the Case Panel has concluded that it is reasonable to issue a CN to each of Paul Wrigley and Ann Pelgrave.
The central point in respect of each of Paul Wrigley and Ann Pelgrave is that the Case Panel considers it was not reasonable for them to act in the way that they did in relation to the DFH Share Sale Act. The reasonable course would have been to respond to the proposal by raising questions as to how the purchase price was to be funded and what impact this might have on the Scheme. This conclusion is particularly obvious in the case of Ann Pelgrave who was a director of the Employer and of DFH at the time (the suggestion that she was a “paper-only” director cannot mean that she was any less a director, and does not affect the duties she owed as director), but the Case Panel considers the same to apply to Paul Wrigley also.
This is not to say that it will always be the case in any share sale that the seller should be concerned with such matters. But on the facts of this case involving a family-owned business, 25% shareholding interests, where the sellers are on notice that the Scheme had a significant pension deficit and that the Employer’s resources are being used to fund the transaction, and where the transaction has been proposed by the buyer whose motives the sellers are sceptical of, the reasonable course would have been to respond by raising the questions identified in the immediately preceding paragraph. It is not a defence in such circumstances for a seller to say that he or she regarded the question of how the purchase was funded as a buy-side matter and not a matter for them to concern themselves with. Reasonable conduct in relation to the Scheme in this case required a more responsible approach on the part of the sellers having regard to the interests of the Scheme sponsored by the Employer.
The Case Panel is reinforced in its conclusion by the fact that it was quite obvious during the evidence given in the Determination Meeting that both Paul Wrigley and Ann Pelgrave were reasonably sophisticated in business matters and well able to understand the potential consequences of an employer borrowing to fund the purchase of the shares of its parent.
The Case Panel notes that a suggestion was developed on behalf of Ann Pelgrave over the course of the Determination Meeting that it was thought that professional advice had been received on the reasonableness of the transaction, including from a pension scheme perspective. However, it is clear from the evidence that no advice was given or asked for on that topic, and the Case Panel rejects any contention that there was a reasonable basis for a view that any professional had taken on responsibility for advising on the same. On the contrary, the accountants Ashgates recommended that the individuals involved obtain advice on the risks involved in the transaction, and the individuals seem not to have taken up that recommendation.
During closing submissions it was said that Paul Wrigley was not aware of the framework of pensions regulation when entering into the transaction. Even assuming it is true, the Case Panel does not consider that this provides any defence to the regulatory action proposed, or provides any basis for suggesting that the course taken by him was reasonable.
Other relevant matters are addressed in the following paragraphs.
Factor (a). The Case Panel takes into account the degree of involvement of Paul Wrigley and Ann Pelgrave in the DFH Share Sale Act as described above, also noting that Chris Wrigley was the architect and driving force behind it. The Case Panel comes back to the degree and nature of involvement when considering quantum below but is satisfied that consideration of this factor does not speak against the imposition of liability.
Factor (b). The Case Panel takes into account the fact that Paul Wrigley was a shareholder and that Ann Pelgrave was a director and shareholder. The Case Panel also accepts that they had limited involvement (bordering on no involvement) with the Employer’s affairs in practice. The Case Panel does not consider that this factor takes the matter further. The fact that they were not themselves involved in the running of the Employer’s affairs does not speak against the imposition of liability on the facts of this case.
Factor (c). The Case Panel does not consider that any connection between Paul Wrigley and/or Ann Pelgrave and the Scheme takes the matter any further on the facts of this case.
Factor (d). The Case Panel does not understand any reliance to be placed on the notifiable event regime in this case.
Factor (e). The Case Panel takes into account that the purpose of the Act was to exchange the shares held by family members for cash and to that extent to confer benefit on the relevant individuals (but also takes into account that pursuant to the transaction those individuals also transferred their shares).
Factor (ea). The Case Panel takes into account that pursuant to the DFH share sale both Paul Wrigley and Ann Pelgrave indirectly received benefit from the Employer. The Case Panel considers that this strengthens the case for a CN, in line with the analysis of the Upper Tribunal in Meghraj at [274]-[278]. The Panel considers the question of benefit further when turning to quantum below.
Factor (eb). The Case Panel does not consider that the position of creditors of the Employer takes the analysis of reasonableness any further on the facts of this case.
Factor (f). In relation to financial circumstances and related matters, the positions of Paul Wrigley and Ann Pelgrave are quite different and require separate comment:
1. As to Paul Wrigley, his financial circumstances were not ultimately a factor relied on in defence to the regulatory action; this was after he had explained during his oral evidence that the proceeds from the share sale was “X XXXXX XXXXXXXXXX XX XX XXX XXXXX”.
2. As to Ann Pelgrave, the impact of a CN on her financial position continued to be relied on at the Determination Meeting, as her financial position is more constrained. We return to this point when addressing the question of quantum below. As will be noted, the Case Panel did not consider that Ann Pelgrave’s financial circumstances were such as to mean that a CN would be unreasonable.
On the specific facts of this case, a further factor to take into account is the settlement with Chris Wrigley and his wife. The Case Panel does not consider that the fact of this settlement in itself causes it to be unreasonable to issue CNs to each of Paul Wrigley and Ann Pelgrave. It is relevant to quantum and is addressed further below.
Accordingly, subject to an overall assessment of reasonableness, the Case Panel considers that it would be reasonable to issue a CN to each of Paul Wrigley and Ann Pelgrave.

By reference to March/April 2016, what is the reasonable sum to impose by way of liability?

The Case Team argues that the reasonable sum to impose, in respect of each of Paul Wrigley and Ann Pelgrave, and before considering the issue of an adjustment for the passage of time, is £360,437, that being the cash sum received by each of them in March/April 2016.
The Case Panel does not agree. It has reached the conclusion that the reasonable sum to impose by way of liability (by reference to March/April 2016) on each of Paul Wrigley and Ann Pelgrave is 50% of that sum – namely £180,218.50 – for the reasons set out below.
First, as noted above, the Case Panel has formed the view that the conduct of Paul Wrigley and Ann Pelgrave in involving themselves as they did with the DFH Share Sale Act was unreasonable. This has informed the Case Panel’s view on the reasonable quantum to impose.
Secondly, it is also to be recognised that this is not a case where the sums received by Paul Wrigley and Ann Pelgrave can be equated in a straightforward way with sums that ought to have been paid into the Scheme. Nor is this a case where it has been possible to put a financial value on the loss caused to the Scheme by the act relied on. It has been confirmed by the Upper Tribunal in Meghraj that the quantum of a CN need not be aimed at being compensatory, but nonetheless the fact that there is no quantified loss in this case is a matter to be taken into account when assessing what sum of liability it is reasonable to impose.
Thirdly, the Case Panel has taken into account the argument that of the sum of £360,437 received by each of Paul Wrigley and Ann Pelgrave, £87,378.68 was in respect of shares that had been gifted by their parents shortly before the transaction proceeded, and such sums were then passed on to children in accordance with their parents’ wishes. It was pointed out that the net sum received was therefore £273,058.32. The Case Panel does not afford this argument significant weight. Paul Wrigley and Ann Pelgrave were under no legal obligation to gift the sums of £87,378.88 to the children. Whilst the fact of the gifts can properly be taken into account, it does not bear significant weight and, in the Case Panel’s view, does not warrant a reduction to the sum otherwise considered reasonable.
Fourthly, the Case Panel has taken into account the argument that tax has had to be paid. The analysis in this regard is different for Paul Wrigley and Ann Pelgrave. In the case of Paul Wrigley, the tax payable has been on the wealth held and has been estimated to be in a total amount of around £15,000-16,000. In the case of Ann Pelgrave, the tax payable took the form of Capital Gains Tax (charged with entrepreneur’s relief) in the sum of £36,048. The Case Panel has taken these points into account. Where consideration is given to benefit received, the Case Panel does not consider that benefit has to be considered on an after-tax basis. However, it has nonetheless taken the submissions in relation to tax into account and is satisfied that the regulatory outcome is reasonable having regard to those facts.
Fifthly, in considering the benefit received, the Case Panel has taken into account the fact that in exchange for the cash benefit received, Paul Wrigley and Ann Pelgrave transferred their shares, so that the end result was that they no longer had any interest in DFH. The Case Panel also notes that the valuation advice given at the time was that DFH was to be valued between £1 and £1,200,000 depending on the stance adopted in relation to the pension deficit. Ashgates also explained that they anticipated that the defensible valuation if HMRC were to investigate was £500,000. The price that was in fact agreed was based on a valuation of Pink Printers Ltd and DFH combined of £1,600,000, and implicitly assumed a valuation of DFH towards the very top end of the range of £1 to £1,200,000 given. This was more than double the figure of £500,000 which Ashgates advised was the figure that it considered it would be able to defend.
Sixthly, the Case Panel has paid careful regard to Ann Pelgrave’s financial circumstances. As to this:
1. In her second witness statement dated 14 August 2023 the information she gave included that she had total assets held individually of £XXXXXXX and total assets held jointly (excluding the marital home) of a further £XXXXXX. In addition the marital home (purchased jointly with her husband in May 2022) was estimated to have an up to date value of approximately £XXXXXXX.
2. At the Determination Meeting the evidence was supplemented with the information that she also had a pension invested with an encashment value of about £XXXXXXX.
3. In her second witness statement dated 14 August 2023 she also stated that “[i]t is anticipated I will lose my employment if a Contribution Notice is issued against me due to the nature of my employment”.
4. However, during the Determination Meeting Ann Pelgrave provided further clarification. She explained that she had agreed with her employer that she would resign if a CN were to be issued to her but that she may still go on to find another job.
5. The Case Panel has taken into account these facts about her financial circumstances but does not consider that they cause the sum of liability identified below not to be reasonable.
Seventhly, the Case Panel has given careful consideration to the impact of the settlement between TPR and Chris and Elizabeth Wrigley:
1. Until the regulatory action against Chris and Elizabeth Wrigley was stayed, the Case Team’s case was that it would be reasonable to impose on each of Paul Wrigley and Ann Pelgrave liability of £360,437 (plus a passage of time adjustment) on a joint and several basis with Chris Wrigley.
2. The effect of such liability of £360,437 being joint and several is that it would be open to the Scheme to choose who to recover from up to the sum of £360,437 (so that, for example, it would be open to the Scheme to recover the full sum from one of the two debtors) and that there would be rights of recovery as between the two debtors (in each case) such that each would (as between them, and subject to the ability in practice to enforce having regard to the financial resources available to the parties) be liable for 50% of the debt.
3. The financial information supplied by Chris and Elizabeth Wrigley is such that the Case Panel considers it reasonable to suppose that if liability had been imposed on each of Paul Wrigley and Ann Pelgrave for the full sum of £360,437, but in each case on a joint and several basis with Chris Wrigley, they could each have expected ultimately to bear the burden of just 50% of the debt of £360,437. That is to say, they could each expect ultimately to have borne the burden of £180,218.50 (either after recovery themselves from Chris Wrigley or recovery by Chris Wrigley from them).
4. It follows therefore that until the regulatory action against Chris and Elizabeth Wrigley was stayed, the Case Team’s case was to the effect that the reasonable regulatory outcome was one on which Paul Wrigley and Ann Pelgrave each bore (after taking into account prospective contribution claims) an effective regulatory burden of £180,218.50 (always at this stage in the analysis putting to one side the question of a passage of time adjustment).
5. In circumstances where the Case Team has not sought to suggest that the regulatory outcome previously sought was unreasonably generous to Paul Wrigley and Ann Pelgrave, the Case Panel does not agree with the Case Team’s position that it is now (simply because the Case Team has reached a settlement with Chris Wrigley) the reasonable regulatory outcome to impose a debt burden of £360,437 on each of the two remaining targets of regulatory action, on a sole liability basis.
6. In the context of submissions on this matter, the Case Team relied on the determination of the Determinations Panel in relation to the Carrington Wire scheme, and the consideration on the facts of that case of how a settlement with one target of regulatory action affected the reasonable course in relation to another. However, that case involved very different facts to this one.
7. The Case Team also raised the possibility, in the barest of terms, that Paul Wrigley and Ann Pelgrave might have the ability to bring contribution claims against Chris Wrigley even in circumstances where the regulatory action against him has been withdrawn. This was not, however, elaborated or developed.
8. In considering the reasonable response to the circumstances as they have developed, the Case Panel has considered it helpful to ask itself, if Chris Wrigley were still involved in this process, but the Case Panel considered it appropriate to impose liability on a sole liability rather than joint and several basis, what would have been the reasonable (sole) liability to impose? On the available information, taking into account that it was Paul Wrigley and Ann Pelgrave who received the sums in question but that it was Chris Wrigley who was the apparent driver and architect of the transaction, the Case Panel considers that it would have been reasonable to impose liability on each of Paul Wrigley and Ann Pelgrave on the basis that they should each share liability referable to the payment received by them 50/50 with Chris Wrigley. It is appreciated that there is a difference between the question “What liability is it reasonable to impose, there having been a settlement with Chris Wrigley?” and “What liability would it have been reasonable to impose on a sole liability basis had the regulatory action against Chris Wrigley still been pursued?” Nonetheless the Case Panel has, on the facts of this case, found it helpful to consider the latter question as part of its considerations when answering the former.
Ultimately the Case Panel has concluded that taking into account that only sole liability is now sought, and taking into account all the matters set out above and the specific facts of this case, the reasonable sum to impose on each of Paul Wrigley and Ann Pelgrave is 50% of the sum received by them in 2016.
The Case Panel’s conclusion therefore is that by reference to the sum received in 2016 in relation to each of Paul Wrigley and Ann Pelgrave, the reasonable sum to impose by way of liability is £180,218.50.

Passage of time adjustment?

The next stage is to consider whether any adjustment for the passage of time since 2016 is reasonable in the circumstances of the case.
In this context the Case Panel was referred to what was said in relation to passage of time adjustment in the Upper Tribunal’s decision in Meghraj and also in the Determination Notice in the case of Dosco.
In circumstances where Paul Wrigley and Ann Pelgrave were in receipt of the relevant sums in 2016 the Case Panel is persuaded that it makes sense for there to be some passage of time adjustment.
The Case Panel does not consider it to be appropriate to base that adjustment on the investment return on assets held by the Scheme as this is not a case where it has been possible to conclude that a specific sum ought necessarily to have been paid into the Scheme.
The Case Panel considers that some form of interest rate (rather than investment return) approach is more suited to the facts of this particular case, to reflect the in-principle benefit of having received money in 2016.
In terms of the approach to be taken to identify an appropriate rate to be applied, the Case Panel considers that it is appropriate to take a high-level and generic approach save where reasonableness requires a different approach to be adopted. Such a high-level approach can have regard not only to investment returns generally available, but also to the cost of borrowing. The Case Panel does not consider that on the evidence in this case there are any special circumstances requiring a more fact-specific approach. In particular, the Case Panel does not consider that the evidence of Paul Wrigley and Ann Pelgrave that they have held the money in low interest accounts is such as to justify a different rate to what would otherwise be considered reasonable.
In these circumstances, the Case Panel considers it reasonable to adopt the rates proposed by the Case Team (2.5% p.a. compound (up to the date of Determination Meeting), and then a simple daily rate of Bank of England Base Rate plus 2.0% from that date onwards). The Case Panel is to a degree reinforced in this view by the observation that these rates will in all likelihood be significantly less than the Employer has paid by way of interest on the sums drawn down.
As to the date interest should run from, the Case Panel considers that the appropriate date is the date of receipt of sums, which the Case Panel concludes on the evidence to have been 1 April 2016. This is reasonable because the application for a passage of time adjustment in this case is justified by reference to the benefit associated with sums having been received by each of Paul Wrigley and Ann Pelgrave. To this extent the Case Team’s calculation of interest, which appears to have used a start date of 18 September 2015, is not accepted.
As for the end dates for interest, there was no specific challenge to the structure proposed by the Case Team pursuant to which compound interest based on a single fixed figure runs up to 2 November 2023 (the date of the Determination Meeting) and then interest runs on a simple (floating) basis up to the date of payment on the relevant CN. The Case Panel is content to adopt that structure in this case.
The consequence (footnote 2) of these conclusions is that the passage of time adjustment up to the date of the Determination Meeting (compound interest from 1 April 2016 to 2 November 2023), applied to a principal sum of £180,218.50 is £37,134.66, giving a total figure as of the date of the Determination Meeting of £217,353.16.

Footnote for this section

[2] Applying the passage of time adjustment calculation up to the date of the Determination Meeting involves the following calculation: £180,218.50*1.025^7*1.025^(215/366) (215 being the number of days between 1 April 2023 and 2 November 2023, and 366 being the number of days in the year from 1 April 2023).

Conclusion on reasonableness

The Case Panel has stepped back and asked itself whether on all the facts of this case it would be reasonable to impose liability on each of Paul Wrigley and Ann Pelgrave in the sum of £217,353.16 plus a daily rate of Bank of England Base Rate plus 2.0% up to the date of payment on the CN.
The Case Panel is satisfied that it would be reasonable to impose that liability on each of Paul Wrigley and Ann Pelgrave, for so long as it is less than the statutory cap of the shortfall sum. As noted at paragraph 96 above, in view of the approach taken in the Warning Notice, the shortfall sum is to be taken to be £5 million.

The alleged wider series

As mentioned at the outset of this Determination Notice, until the settlement with Chris Wrigley and Elizabeth Wrigley, this regulatory matter was not principally focused on sale of DFH shares only, but rather on an alleged series of four acts, of which the sale of DFH shares was just one element. The position was described in the Warning Notice as follows:

“In this Warning Notice, the Case Team relies on a series of extractions, comprising four particular acts:

13.1 Monthly extractions of £20,000 from the Employer since September 2015 (increasing to £23,000 in November 2017) as “management charges” or “dividends”, for the benefit of [Chris Wrigley and his wife]. These were neither true charges for management services nor true dividends, but simply a route for regular extractions of money.

13.2 The “drawdown” of £800,000 from the Employer to an associated company called Pink on 18 September 2015 and transfers of part of that money to Mr Paul Wrigley (as to £360,437) and to Mrs Pelgrave (as to £360,437). This sum became an undocumented, unsecured interest-free loan from the Employer that was never repaid. When planning this transaction Mr Wrigley described his priorities for it as “getting my cash out, personal privacy and Flexibles credit rating”. In fact this was the Employer’s “cash”, not Mr Wrigley’s. It was transferred out at a time when the Employer was asking the Scheme’s Trustees to reduce contributions levels and for the Scheme to pay the PPF levy and Scheme expenses because the Employer said it could not afford to do so;

13.3 The purchase of Pink from the Targets (save Chris Wrigley’s wife) by Ash 126 for £474,949 in Spring 2016 and subsequent stripping of its assets. This led to its acquisition by the Employer for £477,344 in October 2017, by which time Pink was effectively worthless. As at the date of the Warning Notice £337,344 of this sum has been paid to a company owned by Mr And Mrs Wrigley as consideration for that acquisition, and the Employer has entered a loan agreement committing to pay the remaining £140,000;

13.4 The use of the Employer’s assets since September 2015 to support other companies owned by Mr Wrigley, leading to a write-off of debt of £224,481 and using the Employer’s resources to pay a £44,000 debt due from DFG to Ash 126 on 25 July 2018, that has no realistic prospect of being repaid.”
The Case Team stated at the Determination Meeting that their regulatory case could be made out not only by reference to the sale of DFH shares, but also by virtue of the above four acts being a series of acts for the purposes of section 38 PA04 and Paul Wrigley and Ann Pelgrave being a party to that series. However, reliance on this wider series was not at the forefront of the Case Team’s submissions at the Determination Meeting and parts of the alleged wider series, which Paul Wrigley and Ann Pelgrave were alleged to have been party to, were only very lightly referred to.
Having considered the submissions that were made, and in circumstances where it has determined that it would be reasonable to issue CNs for the reasons set out above, the Case Panel is satisfied that the facts relating to the wider alleged series could not justify the imposition of liabilities greater than those which it has concluded it is reasonable to impose by reference to the DFH Share Sale Act. The Case Panel has therefore decided that it is not necessary or appropriate to set out further detail or analysis relating to the wider alleged series, and it does not express a view as to whether the wider set of four acts relied on constitutes a series for the purposes of section 38 PA04.

Overall conclusion

The Case Panel has determined that a CN should be issued to Paul Wrigley in the amount of £217,353.16 together with daily interest charged at 2.0% above Bank of England Base Rate from 2 November 2023 to the date of payment (subject to the shortfall sum cap of £5 million).
The Case Panel has determined that a CN should be issued to Ann Pelgrave in the amount of £217,353.16, together with daily interest charged at 2.0% above Bank of England Base Rate from 2 November 2023 to the date of payment (subject to the shortfall sum cap of £5 million).
No CN will be issued during the period within which the Determination to issue it may be referred to the Upper Tribunal (Tax and Chancery Chamber) (the “Tribunal”) or, if such Determination is so referred, until the final disposal of the reference and of any appeal against the Tribunal's decision.
Appendix 1 to this Determination Notice contains important information about the rights to refer this decision to the Upper Tribunal.

Signed:

Chair: Pauline Wallace

Dated: 26 January 2024

Appendix 1

Referral to the Tax and Chancery Chamber of the Upper Tribunal

Paragraphs 8 to 14 of this Determination Notice sets out the two determinations made by the Panel and who the directly affected parties for each determination are. You have the right to refer any determination you are directly affected by to the Tax and Chancery Chamber of the Upper Tribunal (“the Tribunal”) (footnote 3).

A reference to the Tribunal is made by way of a written notice signed by you or your representative on your behalf and sent or delivered to the Tribunal with a copy of this Determination Notice. The reference notice must be received by the Tribunal no later than 28 days after this Determination Notice is given to you, unless you obtain an extension from the Tribunal.

The Tribunal’s address is:

Upper Tribunal
(Tax and Chancery Chamber)
Fifth Floor
Rolls Building
Fetter Lane
London
EC4A 1NL

Tel: 020 7612 9730

The detailed procedures for making a reference to the Tribunal are contained in section 103 PA 04 and the Tribunal procedure rules.

You should note that the Tribunal procedure rules provide that at the same time as sending or delivering a reference notice with the Tribunal, you must send a copy of the reference notice to The Pensions Regulator. Any copy reference notice should be sent to:

Determinations Panel Support
The Pensions Regulator
Telecom House
125-135 Preston Road
Brighton
BN1 6AF

Tel: 01273 811852

Email: panelsupport@tpr.gov.uk

A copy of the form for making a reference, FTC3 “Reference Notice (Financial Services)” can be found at: www.gov.uk/government/publications/form-ftc3-reference-notice-financial-services

Footnote for this section

[3] Section 96(3)(b) PA 04 also stipulates that a reference may be made by “any other person who appears to the Tribunal to be directly affected by the determination”.

Danapak Flexibles Retirement Benefits Scheme: Determination notice

Matters to be determined

The Decision

Material facts

Background to the business

Background on the Scheme

The sale of DFH shares

Statutory tests under section 38

Statutory tests: Scheme test and Connection test

Statutory tests: Party test and Act test

Statutory tests: Reasonableness test

The Party test

The Act test

Footnote for this section

The Reasonableness test

Is it reasonable to issue a CN?

By reference to March/April 2016, what is the reasonable sum to impose by way of liability?

Passage of time adjustment?

Footnote for this section

Conclusion on reasonableness

The alleged wider series

Overall conclusion

Appendix 1

Referral to the Tax and Chancery Chamber of the Upper Tribunal

Footnote for this section

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