Considered in Grand Committee
That the Grand Committee do consider the Pension Protection Fund (Moratorium and Arrangements and Reconstructions for Companies in Financial Difficulty) Regulations 2020.
Relevant document: 23rd Report from the Secondary Legislation Scrutiny Committee
My Lords, I am pleased to introduce a statutory instrument laid before the House on 6 July. These regulations form part of the corporate insolvency and restructuring regime introduced in the Corporate Insolvency and Governance Act. I am satisfied that the regulations are compatible with the European Convention on Human Rights.
The Corporate Insolvency and Governance Act introduced corporate restructuring tools which include a moratorium and a restructuring plan which offer breathing space and flexibility to keep companies going. These regulations provide the board of the Pension Protection Fund, the statutory compensation scheme, with creditors’ rights in certain specified circumstances when a company, a limited liability partnership or a certain charitable incorporated organisation obtains a moratorium from creditor action or proposes to restructure their business, as applicable, under the new processes available in the Corporate Insolvency and Governance Act.
I had expected also to introduce another set of related regulations for debate. However, we are working with the relevant government department to resolve a technical legal issue. We intend to re-make and lay those regulations with a debate scheduled for a later date.
The regulations we are debating provide the board of the Pension Protection Fund, the statutory compensation scheme, with creditors’ rights in certain specified circumstances. They include when a company, a limited liability partnership or a certain charitable incorporated organisation obtains a moratorium from creditor action or proposes to restructure its business, as applicable. The pension scheme is eligible for the Pension Protection Fund and is directly affected. A moratorium gives companies an opportunity to explore rescue and restructuring options free from creditor action. A restructuring plan will enable struggling companies to negotiate restructuring arrangements to give them the best possible chance of continuing as a going concern.
Under existing pensions legislation, similar corporate rescue processes are treated as insolvency events. This triggers a number of safeguards. When such an event occurs in relation to an employer of an eligible occupational pension scheme, the Pension Protection Fund assesses the scheme and, among other things, takes over the scheme trustees’ or managers’ role as a creditor of the sponsoring employer. Neither moratoriums nor restructuring plans are listed as insolvency events in the relevant pensions legislation as this would undermine the overarching intention to maximise the company’s chance of survival. Therefore, the normal safeguards within the legislation are not engaged.
During the passage of the Bill, there was significant stakeholder and parliamentary pressure to provide specific protections in the new moratorium and restructuring plan procedures in respect of the impact on pension schemes. The concern is that these procedures could result in the pension scheme, as an unsecured creditor of the company, being disadvantaged. The Pension Protection Fund could face a greater loss if the company subsequently fails and the scheme falls into the fund with a larger deficit than it originally had, so there is a need to build in some specific protections by ensuring that the Pension Protection Fund has a seat at the table in any relevant restructuring proposal.
These regulations ensure that the new moratorium and restructuring plans do not leave pension schemes and the Pension Protection Fund without appropriate protections in legislation. We have expedited the making and laying of these regulations to minimise gaps in the legislation after the moratorium and restructuring plan measures came into force. This ensures that the Pension Protection Fund is in a position to act quickly in a fast-moving situation to protect its interests and those of its levy payers. The regulations enable the Pension Protection Fund board to step into the shoes of the scheme trustees or managers in their role as a creditor in the context of the new moratorium and restructuring processes, in relevant specified circumstances, to ensure that the board’s interests and those of the scheme are properly represented. In relation to the moratorium, they provide for the Pension Protection Fund to act in place of the scheme trustees or managers as a creditor in decision-making that may be ordered by the court following a challenge to the directors’ actions and where creditor consent is sought on whether the moratorium should be extended.
Where a restructuring plan is proposed in respect of a relevant entity, and where in the relevant specified circumstances the scheme trustees or managers would otherwise exercise creditors’ voting rights, the board of the Pension Protection Fund will have the exclusive right to vote on the plan. By enabling the Pension Protection Fund to exercise creditor rights, the fund will be protected against the risk of an agreement being struck without it being involved. This will avoid a scheme continuing without adequate protection knowing that the fund will pick up the pieces. The Pension Protection Fund is funded mainly by a levy collected from pension schemes, so it would be levy payers who suffer the loss.
The scheme trustees or managers are not completely excluded, however; they too play an important role protecting members’ interests. To provide the appropriate balance, before the Pension Protection Fund exercises any voting rights or participates in a decision-making process to the exclusion of the scheme trustees or managers, it will be required to consult them. Also, certain rights will be exercisable concurrently, such as the right to participate in meetings ordered by the court and the right to make representations to the court, as applicable.
The moratorium and restructuring plan are important measures that will give companies the best prospect of survival in this period of economic uncertainty. We must also ensure that they do not undermine the protections for pensions schemes, the Pension Protection Fund and its levy payers. I commend these regulations to the Committee and I beg to move.
My Lords, I welcome these urgently needed regulations so that the PPF can exercise creditor rights as the trustee of a defined benefit pension scheme in the event of a moratorium or restructuring proposal. The regulations allow the PPF involvement in discussions, processes and court access with significant implications not only for the members of a particular scheme but for all existing and potential members of the PPF lifeboat and employer levy payers.
The exercising of creditor rights by the PPF in consultation with trustees reflects what happens now in other relevant insolvency and restructuring events. They evolved from the Pensions Act 2004, and the Government have rightly recognised the moral hazard in leaving powers to exercise creditor rights wholly with the trustees. The trustees may not have the resources and power that the PPF can bring to bear. The PPF considers the interests of a scheme and the wider interests of all DB scheme members. There will be anxious pension scheme members at this very moment who are taking comfort from the PPF’s very existence. The trustees could, for example, sign up for a high-risk deal on the basis that it failed the PPF would ensure a minimum level of protection for scheme members and leave the lifeboat to inherit a greater deficit. Giving these powers to the PPF allows it to balance all interests—a good outcome for scheme members, mitigating subsequent large claims on the PPF or perverse attempts to dump pension liabilities.
I refer again to the Arcadia case. The original CVA proposed to cut deficit reduction contributions by half. The PPF, exercising creditor rights, influenced a better outcome, including security over group assets, £100 million in cash and increases in deficit contributions after three years. While welcoming these regulations, they do not close off all concerns proposed by the new moratorium arrangements, such as the incidence of gaming by current or future lenders wanting access to super-priority status; avoidance of pension liabilities and incentivising insolvency over rescue for certain creditors; the non-triggering of a scheme Section 75 debt impacting its creditors’ standing and voting rights; and the imposition of a payment holiday on a scheme’s deficit contributions but exempting finance debt payments from that holiday.
The Government made amendments to the Corporate Insolvency and Governance Bill which, they argued, sought to address these risks. The noble Lord, Lord Callanan, said,
“the Government believe that these amendments remove the risk of gaming the system … but we appreciate that the financial services industry … changes over time. For this reason, my amendments include a power to make regulations … to change the definitions of moratorium debt and priority pre-moratorium debt … As these are the debts that receive super-priority or additional protection, the Government will be able to react quickly and decisively to any changes in market behaviour.”—[Official Report, 23/6/20; col. 154.]
Although real concerns remain, these were welcome concessions in so far as they allow the Government, if they so choose, to respond quickly to gaming and perverse behaviours. The Government also committed to monitor closely how the implications of the new moratorium and restructuring provisions unfold in practice. I appreciate that the Act has only recently come into effect so there has been only a limited period to see how these provisions pan out in practice, but what arrangements have the Government put in place to monitor the implications of the moratorium and restructuring provisions, including the emergence of gaming and perverse behaviours for DB pension liabilities? How will they consult and report on the emergence of such behaviours? What plans do the Government have to lay regulations to allow them to act immediately when such instances occur?
My Lords, I thank my noble friend the Minister for laying these amendments and for the excellent way in which she introduced them. I also support the amendments and believe that many of the points made by the noble Baroness, Lady Drake, are particularly relevant. It is clearly important that the Pension Protection Fund has some recognition—or as much as possible, if you like—in the new environment that has created the moratorium and various super-priorities. It is important that the Pension Protection Fund retains creditor rights where it can to avoid gaming of the fund, which otherwise could be overwhelmed with extra liabilities that are picked up by other pension schemes.
I agree with my noble friend that it is important to ensure that these regulations are able to act in the interests of the Pension Protection Fund and to balance that against the need to preserve functioning and ongoing sponsors during the current emergency. Can my noble friend help the Committee understand what powers this grants to the Pension Protection Fund? I recognise, and we discussed through the passage of the Corporate Insolvency and Governance Act, that there is a limit on the power of the Pension Protection Fund. I appreciate the Government’s amendments, which have introduced some representation, but, for example, if trustees, as was suggested by the noble Baroness, Lady Drake, prefer to approve a high-risk restructuring strategy but the board of the Pension Protection Fund believes the risk is too high and would result in higher costs to it when the company fails—as the board believes would be most likely given the balance of risks that that restructuring would entail—would it have the power to override the trustees and to refuse to agree the proposed course of action and, ultimately, ensure that the company fails sooner rather than later, or would that not be within its powers under the new system?
Equally, if the management of the company wishes to try to sell assets that have already been pledged to the pension scheme and apply to a court to permit this—I understand the corporate insolvency Act permits the authorisation of the sale of such assets and the PPF must be informed or consulted—does the PPF have powers to protect itself against such a transaction on which the funding of that defined benefit scheme had previously been based? What representations might it be able to make in the court environment? Does it have the power to demand detailed information or to conduct its own investigations into the financial position of the company when it is aiming to restructure or undertake some asset sales? Does the Pension Protection Fund have the power to investigate the impact of any loans or other restructuring agreed in a moratorium that might be beneficial to favoured lenders or, ultimately, to the owners of the company, who might end up taking over a restructured operation, having jettisoned the pension fund to the detriment of the funding of the pension scheme when it goes into the PPF?
How do the Government plan to deal with schemes when banks or other lenders to a company during a moratorium attempt to leapfrog ahead of the pension scheme on insolvency, should that occur. At what stage does the Pension Protection Fund have any power to prevent this happening or to be able to intervene to represent its interests if it believes such loans are suspect or may be intended to game the PPF? I have given prior notice of these questions to my noble friend and was grateful to hear that Ministers have some ability to override some of the potential risks to pension scheme members and to other pension scheme members.
I know that it is important to make sure that the Pension Protection Fund—
My Lords, I thank the Minister for providing a detailed explanation of this statutory instrument, the details of which I welcome because they will act as a measure of protection for members who work for companies in financial difficulty which face restructuring.
It is important to remember that companies and those who work for them are not working in normal times. There is the Covid pandemic and the uncertainty around a possible no-deal Brexit, the news last week of a run on the pound and the potential impact of the United Kingdom Internal Market Bill on markets and businesses. References to the Chancellor’s potential raid on the coffers and reserves of businesses that pay for Covid financial measures can also precipitate further anxiety in the marketplace. Many companies have been the bulwark of our economy, as well as their employees, in both the public and the private sector.
As the Minister has explained, and was also explained by the noble Baroness, Lady Drake, these regulations will enable the Pension Protection Fund to participate in key decisions in the process by enabling it to exercise creditor rights that would otherwise be exercisable by the scheme trustees or managers. It provides compensation for eligible pension scheme members whose employer has become insolvent and cannot meet the scheme’s liabilities. I understand that it will be funded mainly by a levy collected from pension schemes.
In considering the impact and legislative effect of these regulations under the Corporate Insolvency and Governance Act, I have some questions for the Minister. Does she think that there will be sufficient money within those pension schemes to pay for a scheme’s liabilities? When the compensation is in payment, could it increase in such insolvency circumstances? If I am an employee, what happens if my scheme is potentially eligible for that but is facing all these difficulties as a result of insolvency? Will it be possible, in such circumstances, for the employee to contribute during the assessment period? Does the assessment period operate in such different circumstances? Is it possible to define the potential costs of such schemes? Will they reduce, bearing in mind that many people have left defined pension schemes? Will that categorisation apply in circumstances to do with restructuring and insolvency? What impact will that have on the Pension Protection Fund in its work with companies? Finally, what other benefits, including social security, are those pension scheme members eligible for if their employers have become insolvent and cannot meet the scheme’s liabilities other than those that may be provided for under the Pension Protection Fund?
The Pension Protection Fund provides compensation and reconstruction arrangements for businesses in financial difficulties. The PPF can also provide compensation to members whose employers are in difficulties. These regulations allow the PPF to intervene to protect its interests where businesses are in a moratorium introduced by the Corporate Insolvency and Governance Act 2020.
An urgent procedure is justified as there is an ongoing risk that a business could obtain a moratorium from its creditors or otherwise exclude the PPF. Under the Insolvency Act 1986 and the Companies Act 2006, the PPF has powers to exercise its right as a creditor during an assessment period following an insolvency event. These terms are defined by the Pensions Act 2004. The moratoriums and restructuring plan introduced by CIGA are, however, not qualifying insolvency events under the 2004 Act. As a result, the PPF lacks the necessary negotiating powers. The regulations are designed to remedy this so that the PPF can exercise creditor rights in a CIGA moratorium or restructuring plan.
The House of Lords Secondary Legislation Scrutiny Committee and the Joint Committee on Statutory Instruments have both considered the new regulations and did not raise any concerns. The House of Commons debated the instrument on 7 September, when Guy Opperman said that the regulations were vital for the continuance of the new insolvency regime. I understand that the Labour Party supported the measures, and on 8 September the instrument was approved by the House of Commons without further debate.
The Government introduced the amendments to the PPF on 21 July; they are subject to the “made affirmative” procedure and came into force on 23 July. The amendments are concerned with bringing co-operatives, community benefit societies and credit unions into the scope of the regulations. The PPF regulations need amending so that the PPF can intervene in such organisations. The amending instrument has not yet been considered by the Joint Committee on Statutory Instruments or the House of Commons. The approval period ends on 1 October.
The widening of the scope for the PPF to be involved in sorting out insolvencies makes sense as it has the expertise so to do. I simply raise a modest flag about the cost of levies where there are already criticisms and it is not reasonable to impose charges of increasing size on pension funds that have no problems to solve.
My Lords, I call the next speaker, the noble Baroness, Lady Wheatcroft. Baroness Wheatcroft? We will come back if we have to. I call the noble Lord, Lord Bourne of Aberystwyth.
My Lords, it is a great pleasure to follow my noble friend Lord Flight. I thank the Minister for setting out the regulations so clearly. I support the regulations; there is clearly a necessity for them and I am pleased that they seem to command support from around the Committee.
The Corporate Insolvency and Governance Act 2020 introduced new and updated restructuring procedures—it was the first significant alteration of these since the 1980s. It included the new moratorium procedure and restructuring plan for companies, limited liability partnerships and charitable incorporated organisations. This procedure had been waiting in the wings for some time—it was nothing particularly to do with the Covid outbreak, although the Corporate Insolvency and Governance Act was concerned with measures that were needed because of the outbreak. In consequence of this new process, these regulations are needed to make provision for the new regimes for pension funds and, specifically, the Pension Protection Fund so that it is able to exercise creditor rights.
I have several questions for the Minister. Is there a particular issue in relation to the time lag? The Explanatory Memorandum refers to a danger of something effectively falling through the cracks. There is reference to the need for the regulations to come into force as soon as possible after Royal Assent to minimise the gap in the application of the regime. Indeed, the Minister referred to the need to do so. What is the significance of this gap? Could the Minister clarify that? Does it apply to the other regulations the Minister referred to which are being delayed? I do not know how long the delay is and whether there is a greater danger to do with the gap referred to. Perhaps the Minister can also advise us about that.
My second point relates to publicity for these measures to ensure that pension funds are aware of these provisions and their impact. What is being done about publicity for the regulations?
I appreciate the reserved nature of these regulations, but given the interlink with other matters such as economic development, where there is a devolved dimension, can the Minister indicate how the department and the Government have engaged with the devolved Administrations to ensure that they are aware of the impact of these regulations and possible interlink with economic development?
Lastly, like the noble Baroness, Lady Drake, I wonder whether the Minister could give us a general overview of—a sort of preliminary canter through—the impact of these new procedures. I appreciate that it is early days yet, but perhaps she can indicate the impact that the new procedures have had and whether there is any particular concern, over and above the concern that we have been addressing today, regarding the impact on pension funds. The noble Baroness may need to write to us on these points, and I will certainly understand if that is the case. With that, I conclude with my wholehearted support for these regulations.
My Lords, I thank the Minister for the way in which she introduced the regulations and for the time she made available to talk to those of us who were interested. She is always keen to be helpful and it is much appreciated.
Obviously, these regulations are needed, and as quickly as possible, but there are issues. I associate myself with the questions raised, particularly by the noble Baronesses, Lady Drake and Lady Altmann. All were interesting questions that deserve answer. I will then specifically query the possibility of companies going through a moratorium and restructuring being obliged to continue paying into deficit reduction funds. My understanding is that, during a moratorium or reconstruction, the obligation to pay staff remains and therefore the obligation to continue paying their pension contributions remains. However, there seems to be a question mark over payments into deficit reduction. I would be grateful if the Minister could give some clarity on that.
Secondly, can the Minister give clarity on the issue that was certainly highlighted during the Bernard Matthews fiasco a couple of years ago? During the course of a reconstruction, what must be termed quite risky—and extremely expensive—lending was taken on to preserve the company, and the result was certainly to disadvantage the pension fund. Will that still be possible under these regulations? In addition, when a company is going through a reconstruction, what is the significance of a floating charge to the pension fund? Does that floating charge continue to take priority?
More generally, since we are heading into a period where corporate collapses could, sadly, happen at far greater a rate than that to which we are used, as other noble Lords have pointed out, does the PPF have the manpower to monitor the situations in so many companies and to keep on top of the situation?
My final question is an overarching one about the ability and the independence of trustees. Much of the thinking behind these regulations seems to imply that, faced with choosing between the longest period of saving the company and looking after the interests of pensioners, the trustees, despite having a duty to pensioners, may well move towards safeguarding, as far as possible, the future of the company and its investors. That seems to highlight a potential failing in the system which has long been a matter of interest.
My Lords, I support this important measure, which gives powers to the Pension Protection Fund in the event of a company—specifically, a limited liability partnership or a charitable incorporated organisation—being in financial difficulty under the new moratorium provisions brought in by the Corporate Insolvency and Governance Act 2020. I also thank the noble Baroness for her introduction and for her offers of information and the opportunities to ask questions before this debate.
As other noble Lords have said, these regulations give the board of the Pension Protection Fund rights normally exercised by pension schemes, trustees or managers. Under the new moratorium provision rather than the insolvency law, the Pension Protection Fund can end up picking up liabilities. It is therefore right that it should have a seat at the table in the same way it does in the case of insolvencies. As these regulations give the board of the Pension Protection Fund rights normally exercised by the scheme’s trustees or managers, when the trustees or managers lose their rights, the board is required to consult them as a result. That seems an important point.
The regulations enable these new rights in the context of limited liability partnerships and charitably incorporated organisations in particular. As other noble Lords have said, they seem timely in the event of the likely economic events in the wake of the pandemic. Other Members have raised a number of issues about that.
The sustainability of the Pension Protection Fund must cause anxiety in the light of potential large company failures and DB schemes in deficit. I note that the noble Lord, Lord Flight, raised in his remarks the cost of levies. The noble Baroness, Lady Drake, raised questions on a number of further risks, which I am sure the Minister will reply to, but I also particularly support her suggestion that the new arrangements should be monitored and reported. The noble Baroness, Lady Altmann, raised the specific powers of the PPF and whether it would have powers to override high-risk solutions to financial difficulties, particularly as regards safe assets and loans, which again the noble Baroness, Lady Wheatcroft, mentioned.
I share the concerns expressed by the noble Baroness, Lady Ritchie, about the protection of a scheme’s members in the event of restructuring and the reactions of markets to economic events, which we seem to be seeing much more of at the moment.
The noble Baroness, Lady Wheatcroft, raised the obligations of companies going through a moratorium, payment into deficit reduction, lending to preserve the company at the expense of the pension funds, and the PPF’s powers to do something about that.
I agree with the noble Lord, Lord Bourne, that we need to know about the time lag and the impact of the delay to these regulations, and of course, pension funds and members of pension funds need to be made aware of these new regulations, so I definitely support having more information about publicity, as well as an overview of the impact of the new arrangements, which the noble Baroness, Lady Drake, and the noble Lord, Lord Bourne, talked about.
I hope that the Minister will be able to answer those questions and make things a little clearer for us in this regard. I support the regulations and thank the Minister for her time in offering to provide information.
My Lords, I am grateful to the Minister for her explanation of these regulations and for her time in advance of today. I am grateful, too, to all noble Lords who have spoken, and I will be interested to hear answers to the many excellent questions from the noble Baroness, Lady Ritchie, the noble Lord, Lord Bourne, and many other noble Lords.
These are tough times. The UK is in recession, the economy shrank by a fifth between April and June, employers are facing unprecedented challenges, unemployment is sky high and there are widespread predictions of large-scale job losses coming down the track as the furlough scheme is wound down. Given those conditions, Labour supported measures in the Corporate Insolvency and Governance Act to help struggling businesses stay open, but it is crucial that when companies face financial difficulty, interventions are made in a way which protects the pension schemes. I pay tribute to my noble friend Lady Drake and all who worked with her in pursuing amendments to the Act when it was a Bill to protect pension schemes and strengthen the position of the PPF. We are seeing the fruit of that work start to emerge here today.
I can confirm that we welcome the regulations. If a company ends up in a moratorium situation or facing a restructuring, it must be right for the PPF to be able to exercise the creditor rights of a trustee of a DB scheme. That is essential to protect the interests of the members of a scheme, but also the interests of all those who pay in to the PPF or may one day need to call on it. The most appropriate benchmark for assessing those measures is surely the powers that the PPF has now in relation to insolvency events.
My noble friend Lady Drake has previously given excellent examples such as the case of Arcadia of how the PPF can act to protect members and in doing so protect the lifeboat itself. Ministers were pressed to mirror what happens in an insolvency in the moratorium, with the triggering of an assessment and all that flows from that, but they chose not to do it, so the concerns articulated today by my noble friend Lady Drake, the noble Baroness, Lady Wheatcroft, the noble Lord, Lord Flight, and others deserve good answers.
I realise that the corporate governance Bill was handled by BEIS and the noble Baroness, Lady Stedman-Scott, is a DWP Minister, but leaving aside the fact that she speaks for the Government, her department has responsibility for the PPF, so I should like to know how the DWP has looked at the implications of these regulations and the PPF in the round. How will Ministers give effect to the concession won by my noble friend Lady Drake and others in relation to monitoring the new processes and taking powers to make regulations to change the definitions of moratorium debt, and what role does her department have in the judgments made on that?
Secondly, what assessment has the DWP made of the potential risk to the PPF of the difference between its position in a moratorium versus an insolvency when it comes to voting rights and creditor standing? Thirdly, what assessment has the DWP made of the potential risk to the PPF, highlighted by my noble friend Lady Drake, of the new moratorium arrangements being gamed by lenders wanting super-priority status at the expense of the pension scheme? Crucially, given the state of the economy and the risks to so many employers, what assessment has the DWP made of the strength and stability of the PPF and its ability to deal with what is coming down the track?
This is a period of unprecedented challenge. It is right for the Government to do what they can to keep companies afloat and jobs alive, but the DWP also has a responsibility to ensure that the framework put in place to protect workers’ pensions does not let them down. If that is not done properly, it could jeopardise not only individual retirement plans but put the PPF lifeboat at risk, add extra burdens to levy payers and potentially risk the whole DWP strategy to drive up long-term savings.
We support the regulations, but the way they are done matters and the stakes are high. I look forward to the Minister’s reply.
My Lords, I am grateful to all noble Lords for this helpful debate and their contributions. I hope that I have been able to establish why it was so important that we introduced these regulations.
The Pension Protection Fund creditors’ rights during a moratorium are intended to enable it to take part in certain decision-making processes as a creditor. For example, it enables the Pension Protection Fund to take part in a decision whether to grant consent to the extension of a moratorium in the relevant specified circumstances set out in the Act.
Where a restructuring plan is proposed, the rights given to the Pension Protection Fund are intended to enable it to influence the shape of any deal, and to seek additional security and guarantees to offset the risk that it takes on a scheme with an even larger deficit in the future.
The Covid-19 pandemic has meant that we have had to respond quickly to facilitate the survival of companies. That will offer employees the best chance of retaining their job. At the same time, we have strengthened the position of pension schemes to improve the chances of employees receiving their expected pension outcomes.
I turn to some of the questions asked by noble Lords. The noble Baronesses Lady Drake, Lady Altmann, Lady Ritchie, Lady Wheatcroft and Lady Sherlock all mentioned gaming. During the passage of the Corporate Insolvency and Governance Act through Parliament, the Government listened to concerns raised and amended the Bill to avoid lenders exercising their rights to accelerate their pre-moratorium debt, thereby potentially gaming the system through a moratorium. While the moratorium provisions do not prevent a financial services creditor exercising a termination or acceleration clause, nor do they remove the requirement that if the accelerated debt is not paid, the monitor must bring the moratorium to an end. But financial services’ pre-moratorium debts are excluded from super-priority where the debt has been accelerated during the moratorium period. The provisions are aimed at encouraging lending to companies in difficulty while also supporting the operation and stability of financial markets. The provisions disincentivise such creditors from seeking to accelerate their pre-moratorium debt solely to benefit from super-priority, should the company fail. There is also power to amend what does and does not receive super-priority, should market practice indicate that tightening the provision is necessary. It is too early to anticipate whether government action will be needed here. We think the provisions in place strike the right balance. The moratorium provisions will be reviewed within three years of enactment.
The noble Baroness, Lady Altmann, asked what powers the Pension Protection Fund will have in cases where a moratorium is in force. A company subject to a moratorium can sell charged property as if it were not subject to a charge only with the court’s permission. A court would not make such an order without the charge holder having had the opportunity to be heard on the application. It will be for the court to decide whether the Pension Protection Fund can intervene. A court will give permission for such a sale only if it will support the rescue of the company as a going concern, something that will be in all stakeholders’ interest, including the pension scheme. Additionally, the open market value of the property must be paid to the charge holder following the sale.
There are provisions to allow for the Pension Protection Fund and the Pensions Regulator to be provided with information concerning a moratorium or a restructuring proposal, in terms of powers to obtain information. In the case of a moratorium, the board of the Pension Protection Fund and the Pensions Regulator will be provided with certain notifications, including that a moratorium has come into force, in relevant specified circumstances. In the case of a restructuring, any notice or other document required to be sent to a creditor of the company must also be sent to the board of the Pension Protection Fund and the Pensions Regulator in relevant specified circumstances. The Pension Protection Fund is then able to review this information including, where necessary, engaging external experts to assess the impact and to reach a view as to how to vote in any transaction.
The noble Baroness, Lady Ritchie, asked if there was sufficient money in pension schemes. Unfortunately, not all pension schemes are well funded. Where a scheme is not well funded, it will go into the Pension Protection Fund. The Pension Protection Fund is confident that its long-term funding strategy and diverse investment approach positions it well to weather current market volatility and future challenges. The Pension Protection Fund’s latest modelling shows that it is well placed to achieve its self-sufficiency target, which is the ability to pay Pension Protection Fund compensation in full, with a 10% buffer. This means that Pension Protection Fund members and members of defined benefit schemes can be confident of the fund’s ability to continue to provide the compensation promised and to remain a robust safety net.
My noble friend Lord Bourne and the noble Baroness, Lady Janke, raised the point that the lag in the timing of bringing forward these regulations is problematic. We have expedited the making and laying of these regulations to minimise gaps in the legislation. After the moratorium restructuring plan, measures come into force. The “made affirmative” procedure enabled the regulations to come into force soon after they were laid. We are not currently aware of any moratorium in force or restructuring plan proposed in relation to an employer pension scheme eligible for the Pension Protection Fund.
My noble friend Lord Bourne and the noble Baroness, Lady Janke, raised the issue of the impact so far. As I said, we are not aware of any moratorium or restructuring plan in place, but we will monitor the situation closely.
My noble friend Lady Wheatcroft asked about reduction contributions: are deficit reduction contributions enforceable during a moratorium? As employees’ wages or salary must be paid, whether or not they fall due before or during the moratorium, the term “wages or salary” also includes a contribution to an occupational pension scheme. Payments made under deficit repair contributions are not enforceable. This is the debt for which the Pension Protection Fund is acting as a creditor.
My noble friend Lady Wheatcroft also raised the Bernard Matthews case. Pre-pack sales are a useful tool for rescuing businesses, saving jobs and maximising funds available to creditors. If I may, I shall write further to her on that issue.
My noble friend also raised the issue of the Pension Protection Fund’s resources to intervene in moratoriums. The Pension Protection Fund has an in-house restructuring and insolvency team but also the ability to call on third-party advisers to support its work. The Pension Protection Fund keeps its level of resourcing under review but at present it is confident that it can engage in moratoriums and restructuring plans as necessary.
A number of noble Lords raised questions about monitoring as things develop. We have regular governance meetings with the Pension Protection Fund and the Pensions Regulator as the sponsoring department. We will therefore be able to monitor developments in the light of operational experience.
Many noble Lords asked questions that I will not have time to respond to in summing up, but I confirm to all noble Lords that we will review Hansard and make a point of writing to noble Lords with the answers to their questions.
To conclude, we will keep these measures under review. My department and the Pension Protection Fund have regular meetings to review its performance. I commend the regulations to the Committee.