The Pensions Regulator is looking at making a rare use of its powers to force a division of Carlyle Group, one of the world’s biggest private equity firms, to make good on a pension shortfall at a Worcestershire carpet manufacturer whose retirement obligations it is trying to pass to the Pension Protection Fund.
In early September, Carlyle Strategic Partners, a global fund, acquired the roughly £18m of senior debt of struggling Brintons and launched what is known as a pre-pack administration.
In these proceedings, a company is put into, and bought out of, administration quickly, reaching terms with all creditors.
In this case, however, Carlyle held discussions with the trustees, who are also company creditors, but never reached agreement.
“We have opened an investigation looking into whether it would be appropriate to use our powers in this situation,” a spokesman for the regulator said.
“In this case, discussions involving the regulator and PPF never resulted in a realistic offer which treated the pension scheme fairly with regards to the position of other creditors.”
When schemes are passed to the PPF, members lose from 10 to 30 per cent of promised benefits.
Carlyle said its course of action was the only one possible. Ian Jackson, director of Carlyle Strategic Partners, said: “By acting quickly, we saved the company from liquidation. Brintons was losing business and losing cash. If a deal had not been done on Friday September 2, the business would have collapsed on Monday September 5 and all the jobs would have been lost.”
Brintons is the latest company to have been tipped into, and out of, administration, minus the pension liabilities, through the acquisition of its senior debt by a private equity investor. This year, Polestar, the printing firm, and Silentnight, the bedding manufacturer, were acquired in similar fashion.
Acquirers of those companies are seeking to tip pension liabilities into the PPF, whose own funds come from the premiums paid to it by other, solvent employers.
Bill Galvin, chief executive of the Pensions Regulator, said that the body was already investigating some earlier cases of pre-pack administration arrangements and was considering enforcement actions in those cases as well.
“We are very concerned about the potential for pre-pack insolvencies to be used to offload pension liabilities cheaply.
“It is a blow for the members who receive lower pensions than promised and the employers who have to pick up the bill via the PPF levy.”
Among the statutory responsibilities of the regulator is to limit claims on the PPF.
Widespread use of this loophole could lead to a very large increase in PPF shortfalls that other employers would have to pay.
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