Four top tips for insolvency practitioners

This article was produced by Nabarro LLP, which joined CMS on 1 May 2017.

Summary and implications

The Pension Regulator, in its recent note to insolvency practitioners, has indicated that it will not – as a matter of course – appoint an independent trustee to a pension scheme in the event of an insolvency process being entered in to by the pension scheme sponsor or participating employer. The Regulator suggests that the insolvency practitioner may take on the trusteeship themselves or use the scheme’s powers to appoint a third party as a trustee. In this briefing, our pension and restructuring specialists briefly consider the insolvency practitioner's alternatives.

1. Don’t give up the day job

The Pensions Regulator (the Regulator) has released the latest of its Notes for insolvency practitioners (the Statement) setting out its position relating to the appointment of trustees to defined benefit pension schemes where the company sponsoring the scheme has entered into an insolvency process.

Where the Regulator decides not to exercise its powers to appoint a trustee from its trustee panel, the Regulator encourages insolvency practitioners (IPs) either to:

• exercise any applicable employer powers under the scheme to appoint a new trustee; or
• to take on the role of trustee where the company may have been a trustee of the scheme.

Do you really want to take on those roles?

2. Fiduciary duties and independence

The Statement sets out relevant considerations for IPs in appointing a trustee, for instance the IP should be satisfied that the trustee is independent. The Statement sets out that while in most circumstances an IP is capable of performing the employer's trustee function, there may be reasons why this is neither practical nor appropriate (for instance, where there is a conflict of interest or where the tasks required of the trustee are too extensive or complex).
If you choose to act as a trustee, you will have to comply with the fiduciary duties that are obligations on a trustee under trust law. So, for example, you will have to:

• administer the scheme for the benefit of the members and in accordance with the Scheme’s governing provisions; and
• act in accordance with the requirements of pension law, including when negotiating funding with the employer’s representative.

Will you be comfortable managing any conflicts of interest?

3. Where do you turn?

There are professional trustees who will take appointments to administer the schemes independently from you and the company, allowing you to focus on the business of running the insolvency process.
Different trustees, though, have different skill-sets. For example:

• some have an actuarial background and can work with the scheme’s advisers where, say, the scheme is significantly underfunded;
• some have a legal background so where the schemes have issues with past changes or unclear documentation, they can address the issues from a position of strength; and
• some have scheme governance backgrounds in which case there may be a period of time where the scheme has to be run on as an open scheme.

Will you be comfortable in selecting a trustee for the scheme?

4. How we can help

We have extensive experience advising IPs and have a large network of contacts with all the major firms of independent trustees as well as some of the smaller trustees who have specialist expertise.

If you would like to have an informal chat about how we can help you, please contact us and we will be happy to discuss our restructuring and pension services with you.