Many companies are labouring under crushing pension scheme deficits and directors whose actions or defaults worsen the situation can be held personally liable. Exactly that happened when a tribunal opened the way for a director of a collapsed retail group to be issued with a multi-million-pound bill.
The businessman had, through a company of which he was 90 per cent shareholder, acquired the struggling group for £1 in the knowledge that its two pension schemes were gravely in deficit. By the time the company entered administration a little more than a year after the acquisition, those deficits had increased further.
Following an in-depth investigation, the Pensions Regulator claimed that, prior to the insolvency and to the detriment of the pension schemes, £9,542,985 had been paid by the company to the businessman, his associates and advisers. The regulator decided to employ powers under Section 38 of the Pensions Act 2004 to issue contribution notices on the businessman in that amount.
The regulator argued, amongst other things, that the circumstances of the sale itself had worsened the position of the pension schemes. Inexperienced managers had been appointed to the group’s board and there had been no realistic plan to turn around its business or to tackle the pension deficits.
The businessman disputed the figures put forward by the regulator and denied that money had been illicitly extracted or diverted from the company. He insisted that the relevant sums had been paid for legitimate commercial reasons and that he had not been a party to any acts which caused material detriment to the pension schemes. His challenge to the regulator’s decision was, however, struck out automatically due to his repeated failure to comply with directions of the First-tier Tribunal (FTT) concerning disclosure of documents.
In dismissing his appeal against that outcome, the Upper Tribunal (UT) found that his unacceptable conduct revealed a fundamental failure to cooperate with the regulator and the FTT. He had put forward no good reason for his non-compliance and, whilst the striking out of his appeal without a hearing on the merits was a serious step, that was outweighed by the importance of efficient litigation and compliance with rules and orders. The UT’s ruling opened the way for the regulator to formally issue the contribution notices and serve them on the businessman.