Corporate Insolvency & Governance Act 2020 ('CIGA'): Helping DB Pension Trustees Prepare

CIGA has enacted arguably the most significant changes to the UK’s corporate rescue toolkit since 1986.

Whilst the aim of these changes is to support companies survive the current crisis, the new tools potentially pose significant risks to DB pension schemes.

Overview of the Corporate Insolvency & Governance Act 2020 (‘CIGA’)

CIGA is a new Act enacted on 26 June 2020 implementing arguably the most significant changes to the UK’s restructuring and insolvency toolkit since 1986. The changes give companies temporary easements to help them navigate COVID-19, but also introduce permanent new tools that make the UK’s rescue regime more “debtor-friendly” than it has ever been.

Temporary COVID-19 easements (currently until 30 September 2020):

  • Suspension of winding up petitions (if grounds are related to COVID-19)
  • Suspension of Wrongful Trading personal liability for directors

Permanent changes & new tools:

  • Moratorium
  • Restructuring Plan
  • Ipso facto clauses

What are the DB Pensions implications?

Business rescue and survival are at the heart of CIGA at a time when many corporates are facing unprecedented financial and operational challenges. On one hand this should be good for the many DB pension schemes that are reliant on long-term covenant and need their sponsors to survive the current crisis. However, there is the potential for these changes and tools to create new challenges and risks for DB pension schemes and their members. There are a number of key questions trustees are now facing:

  • Has a trustee’s winding up power been watered down?
  • Is a scheme’s floating charge security now less valuable?
  • Are DRCs subject to the Moratorium payment holiday but financial creditors are not?
  • If a Moratorium fails, will certain creditors gain super priority ahead of the pension scheme?
  • Can a Restructuring Plan force changes to a pension scheme’s recovery plan without the consent of PPF or trustees?
  • Can a Restructuring Plan force a s.75 compromise or benefits haircuts without the consent of PPF or trustees?
  • How does CIGA interact with the Pensions Bill and TPR’s Moral Hazard powers?

The answers to these questions are complex and will be highly case specific. However, it is crucial for trustees to consider these questions with their advisors now to ensure they are prepared to face these new tools and get the best out of them for their members.

What can trustees do now to prepare and protect?

Trustees may soon be faced with dealing with a Moratorium or a Restructuring Plan. Trustees should ensure they:

  1. take any steps available now to bolster up the scheme’s protection, and
  2. are prepared to react at pace to defend the scheme’s position under a restructuring.

This is best done by carrying out detailed contingency planning, proportionate to the situation, to include the below key areas:

  • Assessing and monitoring distress in covenant
  • Understanding eligibility and likelihood of sponsor using the new tools and other restructuring processes
  • Identifying pension scheme’s vulnerabilities under various restructuring processes
  • Understanding pension scheme’s leverage and powers
  • Update scheme funding and investments and quantify risks
  • Consider availability of Moral Hazard and other regulatory powers
  • Estimating pension scheme’s recoveries under various counterfactual downside scenarios
  • Preparing (and potentially starting to implement) pension scheme’s defence strategy
  • Potentially engaging with other stakeholders (TPR, PPF, creditors, company etc)

In certain situations, the Restructuring Plan may be an opportunity for Trustees to improve the security or deliver better outcomes for members than under the status quo. In these situations, Trustees may want to consider how they might launch a pension scheme-led Restructuring Plan.

How we can help

Covenant understanding is a key element to a trustee board’s strategic thinking. However, in the current climate, with the potential risks to pension schemes that the new CIGA tools may pose, trustees need more than just business-as-usual covenant advice.

Trustees need covenant advisors that have the experience of leading complex and pressurised restructuring situations.

We have the scale and experience to give trustees dedicated lead advisory service at pace:

Both our Covenant and our Restructuring & Insolvency practices are the UK’s largest. Our Covenant team has 13 Partners and Directors (7 of whom are qualified Insolvency Practitioners) and over 70 full-time staff members, whilst our wider Restructuring & Insolvency team has over 600 restructuring advisors and insolvency practitioners.

We have led some of the world’s most complex restructuring and insolvencies, innovating new techniques and processes, including the majority of the cases in the market to date involving UK DB pension schemes.

We have valuable relationships with key players in both the pensions and restructuring communities which helps us get consensual outcomes (e.g. banks, credit funds, sureties, lawyers, QCs,TPR, PPF, Government etc)

We provide our trustee clients with a joint team from both our market-leading Covenant and Restructuring & Insolvency practices, blending deep covenant expertise alongside situational restructuring experience.

We can draw upon our wider multidisciplinary pensions and sector practices, but are equally very happy working collaboratively alongside other advisors. We are happy working alongside incumbent covenant advisors, supplementing their role.

Contact us

Stephen Soper

Stephen Soper

Partner, Senior Pensions Adviser, PwC United Kingdom

Tel: +44 (0)7885 403139

Atul del Tasso-Dhupelia

Atul del Tasso-Dhupelia

Director, PwC United Kingdom

Tel: +44 (0)7703 563690

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