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Dosco Overseas Engineering Limited - Regulatory intervention report

Regulatory intervention report issued under section 89 of the Pensions Act 2004 in relation to the Dosco Overseas Engineering Limited (1973) Pension & Assurance Scheme.

Published: 31 March 2022

Case summary 

In this case we successfully used our anti-avoidance powers in relation to a management buyout in 2013 of an engineering business from its German parent company. This buy-out resulted in the employers being unable to support the pension scheme. Only eight months later, the employers went into administration and the scheme entered into an assessment period with the Pension Protection Fund (PPF).

Our intervention led to a Contribution Notice (CN) against the former parent company for just over £2 million, and settlement of around £130,000 with a key individual. It also represents the first time the Determinations Panel has awarded an additional sum for lost investment returns and interest as part of the CN amount.


Dosco Overseas Engineering Limited and Hollybank Engineering Co Limited, are the statutory employers of Dosco Overseas Engineering Limited (1973) Pension & Assurance Scheme. The pension scheme is a defined benefit arrangement and had 584 members (204 deferred and 380 pensioner members) when we began our regulatory action. The fund had assets of £53 million, with a section 75 deficit of £38.8 million at the date of the management buyout.

The employers are subsidiaries of Dosco Holdings Limited, and together make up the Dosco Group. Until it went into administration, it had manufactured and supplied mining and tunnelling support equipment and employed approximately 55 members of staff.

The former parent company, SMT Scharf AG, is a German-registered mining equipment business with global interests and subsidiaries. When it acquired the Dosco Group from Billington Holdings Plc in 2010, we received a clearance application from a number of parties, including Billington, Scharf, and named directors, including Martin Cain, the chief executive of the Dosco Group.

All parties involved acknowledged that the 2010 transaction could affect the employers’ ability to support the scheme, as they were historically heavily reliant on formal support provided by the Dosco Group’s previous parent company, Billington. The clearance application stated that Scharf would be a better “business fit”, and that the transaction would offer a number of advantages to the Dosco Group, providing valuable mitigation in the form of shares for the scheme. It also offered a warranty that all transactions affecting the group would be at arms-length.

In 2011, Scharf appointed a senior member of its management team as a director of the Dosco Group companies and also as a trustee of the scheme. He took an active interest in the companies and approved inter-company loans and other financial support for the employers from Scharf such as loans and guarantees. In March 2012, he stood down and was replaced as a director of the Dosco Group companies by another senior Scharf appointment, Christian Dreyer, who chose not to become a scheme trustee.

Following his appointment, Mr Dreyer took a close interest in the scheme’s position and the impact it had on the employers’ profitability and the prospect that Scharf would realise value from its ownership of the Dosco Group. He commissioned a “special report” for Scharf’s supervisory board, which was considered at a meeting in September 2012. Among other matters, it covered “pension fund related risks” and recommended a sale rather than continuing operations or closing the group – either of those courses of action would have risked Scharf’s guarantees being called upon.

The group chief executive, Mr Cain, was present for part of the supervisory board meeting which considered the future of the Dosco Group where he shared his view that one of the employers, Hollybank, had no future. Scharf decided they should postpone Hollybank’s closure as this would trigger the pension fund’s section 75 debt.

The supervisory board concluded that its continued ownership of the Dosco Group would not generate any value for Scharf and approved the recommendation to dispose of the Dosco Group and end Scharf’s connection to the scheme.

Following this decision, Mr Dreyer immediately instructed Mr Cain to close the scheme to future accrual. In November 2012, in preparation for a sale, Mr Dreyer initiated a process, which involved taking steps to remove the financial support that Scharf was providing to the group, including £1 million in guarantees. He also gave the actuary instructions to use different assumptions for the scheme deficit, to increase the sum in Scharf accounts, to maximise the benefit of any disposal, and to reduce the deficit in the employers’ accounts. These actions were all intended to make the group more attractive to potential buyers.

Mr Cain was financially incentivised by Scharf to find a buyer for the group under the terms of a consultancy agreement, which he entered into with Scharf in a personal capacity. This meant that he would receive 10% of any sale proceeds if Dosco Holdings was sold in 2013. This was later amended to be a “minimum” sum of €250,000.

Two potential external buyers initially expressed interest in the group, but one of these withdrew once they understood the size of the pension liabilities. The other interested buyer went as far as making a formal offer, but their last offer in April 2013 would have resulted in Scharf receiving €500,000 in upfront cash and then a share of future profits, up to a maximum purchase price of £2 million.

At this point the Dosco management team, led by Mr Cain and encouraged by Scharf, started to seriously pursue the prospect of a management buyout, with Mr Cain telling Mr Dreyer that he was seeking potential investors and was hopeful of a deal of at least €2.5 million.

Scharf publicly announced their intention to sell the Dosco group in April 2013, while Mr Dreyer and Mr Cain continued their discussions about a potential management buyout. 

The sale

Scharf sold Dosco Holdings for €2 million in May 2013 to a shell acquisition vehicle, Dosco Mining Limited, which had been incorporated for the purpose by Dosco’s management team. The €2 million purchase price comprised €1.5 million in upfront consideration and a €500,000 interest-bearing loan from Scharf to be paid over five years. This amounted to considerably more than the upfront consideration from the only other interested bidder. The day after the sale concluded, Scharf paid Mr Cain €250,000 under the consultancy agreement.

Dosco Mining was a shell company with no assets or investors and the purchase price was “extracted” by way of loans from the scheme employers (Dosco - £670,000 and Hollybank - £750,000) to Dosco Mining. These loans were subject to onerous terms, with one stipulating that the loans would be written off in the event of the insolvency of either party. Mr Cain retained his position as chief executive following the purchase and took a 60% shareholding in Dosco Mining.

Despite Scharf and Mr Cain having previously applied to TPR for clearance in 2010, they didn’t make an application in relation to the management buyout, offered no mitigation, and also failed to notify or consult the trustees until the day after the transaction had completed. Mr Cain had received legal advice that the management buyout would be likely to have a materially detrimental impact on the scheme, and that mitigation should be considered, and yet, while raised in discussions, he still failed to pursue this with the trustees after the sale.

Only eight months after the management buyout completed, Dosco and Hollybank went into administration, triggering a PPF assessment period. In December 2015, the trustee secured a buy-in for the scheme with reduced benefits, meaning the scheme members would not receive the full amounts they expected.

Regulatory action 

In March 2019, we issued Warning Notices against both Scharf and Mr Cain. Our case was based on Scharf’s complete disregard for the interests of the scheme by the inappropriate disposal of Dosco Group to a shell acquisition vehicle, with no investment or realistic prospect of future financial support. The transaction deprived the scheme of parental support on which the employers historically relied. It also extracted about £1.4 million in cash in the form of the employer loans to Dosco Mining, which wholly funded the acquisition and the purchase price to Scharf. We argued that Mr Cain had personally benefitted from the transaction under the consulting agreement.

While preparing the case to go to our Determinations Panel we simultaneously engaged with both targets in settlement discussions. In December 2020, we successfully negotiated a settlement with Mr Cain for around £130,000, which reflected the benefit he received under the consulting agreement. We withdrew his case from the Panel as a result.

We continued to press ahead with our case against Scharf and, despite having requested an oral hearing, Scharf did not attend the hearing before the Panel in February 2021.


In March 2021, the Panel made its decision and, in August 2021, issued the CN against Scharf for £2,082,382.86. This comprised a principal sum of £1,412,113.77 and an additional sum of £670,269.09 for lost investment returns and interest, with a further £114.10 daily interest, subject to a maximum total sum of £2,317,278.70. This is the first time the Panel has awarded an additional sum for lost investment returns to a scheme and interest for the time-value of money in the hands of a target.

Scharf then referred the Panel’s decision to the Upper Tribunal in April 2021 but withdrew their reference in July 2021 after we filed our statement of case.

Our approach 

The case demonstrates that we will investigate and take enforcement action for the benefit of schemes of all sizes.  We will consider action against both corporates and individuals where appropriate, and the fact a target is based overseas is no obstacle to the use of our anti-avoidance powers.

This case also offers a good example of how we will consider settlement where this is a reasonable outcome and justifies bringing our regulatory action to a close, saving costs and resources for all parties involved.