Contribution notices in practice—the Desmond case
Contribution notices in practice—the Desmond case

The following Pensions practice note provides comprehensive and up to date legal information covering:

  • Contribution notices in practice—the Desmond case
  • Facts
  • Decision of the Determinations Panel—Determination notice
  • Prevention of recovery and the main purpose test
  • Reasonableness
  • Appeal against the Determinations Panel decision and applications to the Upper Tribunal
  • Upper Tribunal’s decision on the interim applications
  • Appeal against the Upper Tribunal decision to Court of Appeal (Northern Ireland)
  • Judicial review application to High Court of Justice (Northern Ireland)
  • Stay on main Upper Tribunal proceedings lifted
  • More...

THIS PRACTICE NOTE ONLY APPLIES TO DEFINED BENEFIT OCCUPATIONAL PENSION SCHEMES

Facts

Desmond & Sons Ltd (Desmonds) was a clothing manufacturer based in Northern Ireland and the sole employer of the Desmond & Sons 1975 Pensions and Life Assurance Scheme (the Desmond Scheme). Desmonds was at all material times a solvent company. Marks & Spencer plc (M&S) was its only customer until 3 February 2004 when M&S announced that it was terminating its business relationship with Desmonds.

The Desmond Scheme had an estimated buy-out deficit of £10.9m but was fully funded on the Minimum Funding Requirement (MFR) basis. Desmonds injected £4m into the Desmond Scheme in May 2004 to remove the funding deficit on an ongoing basis.

On 3 June 2004, Desmonds entered into Members’ Voluntary Liquidation (MVL). While an MVL is normally treated as a solvent liquidation, there was a loophole in Northern Ireland legislation at the time which meant that Desmonds was treated as an insolvent company for the purposes of calculating the debt owed by Desmonds to the Desmond Scheme. As a result, Desmonds’ employer debt was calculated on the weak MFR basis rather than the much stronger buy-out basis.

The director shareholders of Desmonds therefore realised a greater value (approximately £26m) from the liquidation of the company than would otherwise have been the case. From this, the director shareholders received dividends totalling £17.2m.

The trustees were

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