The Pensions Regulator (TPR) has agreed a settlement in its anti-avoidance case against the current owners of the bed manufacturer Silentnight.
TPR alleged that HIG Group, a US private equity group, deliberately brought about the unnecessary insolvency of the original Silentnight Group in order to buy its business out of administration, while leaving its defined benefit pension scheme behind.
HIG has paid £25 million to the scheme. The targets of TPR’s action (certain entities, members and executives, or former members and executives, of the HIG Group) disputed the case.
Together with proceeds from the insolvency process, the scheme has received approximately £35 million.
TPR has today published a regulatory intervention report detailing the case which sets out how the settlement brings certainty for scheme members and PPF levy payers.
Nicola Parish, TPR’s Executive Director, Frontline Regulation, said: “It is our view that HIG brought about the unnecessary insolvency of the original Silentnight Group in order to buy its business out of a pre-pack administration without the pension scheme. We believe this is unacceptable and it was vital we acted, in part as a deterrent against this type of behaviour in the future.
“We were prepared to hold settlement discussions in parallel to our enforcement action to see if an appropriate outcome could be achieved without the need to formally use our powers or risk prolonged legal action. This enabled us to avoid further costs and obtain certainty for scheme members.
“This was a complex enforcement case, involving the successful defence of a judicial review application against well-resourced targets in the UK and overseas. We continued to pursue our case despite those challenges.”
The anti-avoidance case related to the acquisition of the business by the HIG Group in May 2011. At the time, various entities within the original Silentnight Group sponsored a defined benefit (DB) pension scheme which was in deficit. TPR’s report sets out how it pursued the use of its anti-avoidance powers after the scheme was severed from its sponsoring employers’ business by a pre-pack administration.
TPR’s case was that the targets acquired the employers’ bank debt and used their position as lender to bring about the unnecessary insolvency of the employers. TPR alleged that the targets then took steps to buy the employers’ business at below market value as part of the administration process that followed.
While the £25 million settlement is a substantial sum, the settlement, plus the additional recoveries from the liquidation, will not eradicate the scheme’s deficit on a Pension Protection Fund (PPF) basis, so it is expected to transfer to the PPF. The scheme has 1,200 members.
TPR’s case began in 2011. TPR issued two warning notices, in 2014 and in 2016, seeking contribution notices (CNs) against targets in the UK and overseas.
During the complicated and challenging case, TPR successfully defended a judicial review application by the targets in 2016. TPR’s decision to issue a second Warning Notice was challenged by the claimants claiming it was unlawful. However, they failed to obtain permission to bring judicial review proceedings against TPR.
Notes for editors
- In reaching settlement in the Silentnight case, we considered various factors in our decision, including:
- the value of the financial sum being made immediately available to the scheme
- the risk of litigating complex regulatory action with the potential for prolonged periods of legal challenge
- the resulting significant costs
- continued uncertainty for the saver
- The Pensions Regulator is the regulator of work-based pension schemes in the UK. Our statutory objectives are: to protect members’ benefits; to reduce the risk of calls on the Pension Protection Fund (PPF); to promote, and to improve understanding of, the good administration of work-based pension schemes; to maximise employer compliance with automatic enrolment duties; and to minimise any adverse impact on the sustainable growth of an employer (in relation to the exercise of the regulator’s functions under Part 3 of the Pensions Act 2004 only).
