Sea Containers steps up fight against financial support directions

United Kingdom

Background

Last night, Sea Containers Limited (SCL) confirmed speculation that it was appealing against the Determination Notices issued against it by the Pensions Regulator last month (see our previous Law-Nows, "Pensions Regulator finally flexes its muscles" and "Sea Containers - the Regulator reveals its reasoning"). Those Notices confirmed the Regulator's intention to issue financial support directions (FSDs) against SCL that would require it to put arrangements in place to underwrite the liabilities of its UK service company, Sea Containers Services Limited (SCSL) under its two UK defined benefit schemes.

The grounds for appeal

Under the Pensions Act 2004, the Regulator must be "of the opinion that it is reasonable" to impose the requirements of an FSD on a party. We understand that the key elements of SCL's appeal revolve around whether or not the issue of FSDs in the circumstances of their case is in fact "reasonable":

  • SCL argues that it may be contrary to public policy for the Regulator to give the Trustees support which may disadvantage other creditors in a formal restructuring process governed by U.S. bankruptcy law;
  • It contrasts its case with other restructurings in which the Regulator has not used such powers, but has assisted trustees in negotiations and given formal clearance to the proposals: SCL says that it has always anticipated that its own reorganisation would be subject to clearance procedures; and
  • It says that an existing services agreement between itself and SCSL already provides adequate support. The precise meaning of that agreement had appeared somewhat vague, but SCL now states that "dispute resolution is underway to agree the scope and effect of this agreement".

Finally, SCL's press release reveals that the Regulator has also notified SCL that it is considering commencing further financial support proceedings in relation to other participating employers in the two schemes. SCL warns that any such proceedings, if brought, "will be defended".

Procedure and next steps

In practice, an appeal takes the form of making a "reference" to the Pensions Regulator Tribunal, the independent body established by the 2004 Act to hear appeals from the Determinations Panel of the Regulator. The Tribunal consists of a panel of eight legally qualified chairmen, all of whom also sit on the Financial Services and Markets Tribunal, and a further panel of 17 lay members. All have been appointed by the Lord Chancellor. The tribunal for the purposes of SCL’s reference will be selected from these two panels.

The Regulator has confirmed that the process for issuing FSDs is therefore on hold. It now has 28 days to reply to the issues raised by SCL, after which the Tribunal will make its decision. From the Tribunal, appeal - on a point of law only - lies to the Court of Appeal. Such an appeal requires leave from the Tribunal or, if such leave is refused, leave from the Court of Appeal itself.

We will continue to keep you informed as to the further steps in this case.