Given that April 6, 2022 was the date set out in the new draft notifiable events regulations it seems distinctly odd that there has been complete silence since the consultation closed last October.
I am hoping the silence is down to legislators having a long hard think about whether the drafting is fit for purpose and will achieve its policy aims. There is no doubt that the current framework is not really working. Most notifications will, under the current framework, be made at the point of sale of a company – not in advance of the sale process – so potentially too late for the Pensions Regulator or scheme trustees to do anything meaningful if there is a problem. And financings do not need to be notified, though may fall foul of moral hazard more generally. But what has been proposed by way of “improvement” is flawed and overly complicated.
In terms of process, it cannot be necessary for the Regulator to be notified of every potential transaction the moment a decision in principle (whatever that means – it will be very fact specific) is taken. Lots of transactions don’t get off the ground for a variety of reasons and what is the Regulator supposed to do with such a (very early) early warning? Also is it necessary for a written statement to be given as soon as main terms are known and then to be regularly updated? Negotiations on key terms of transactions (like purchase price) often continue up to the point of signing. The Regulator will be awash with notifications.
And in terms of transactions to be notified, there is no concept as there is under the current framework of some matters only having to be notified if a scheme is underfunded on a PPF basis. There are two new notifications, the sale of a material proportion of assets and security which will outrank the scheme. The assets test is complex (of itself and because of the requirement to aggregate transactions over the previous 12 months) and de-coupling it from any requirement for there to be covenant impact will lead to curious results. The security trigger is easier to follow but as drafted would catch refinancings where trustees are in no worse position, which is inconsistent with the consultation and cannot be the intent.
None of this needs to be so complicated. A simple fix to most of these issues would be to amend the current framework to require advance warning of refinancings and sales of companies or businesses which might have a materially detrimental impact on the scheme. The potential penalty for a breach (up to £1 million in theory) will make sure corporates are on top of the requirement and the Regulator can concentrate its efforts on difficult cases.
