Section 75 and contingent debts—considerations for employers and trustees
Section 75 and contingent debts—considerations for employers and trustees

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

  • Section 75 and contingent debts—considerations for employers and trustees
  • Trustees’ unilateral powers
  • Unilateral power to wind-up—impact on employer/employer’s group
  • Managing a contingent debt—employer considerations
  • Formal agreement with the trustees
  • Directors of the employer—protection from wrongful trading
  • Interplay of contingent section 75 debt and the employer’s other creditors
  • Company accounts and the contingent debt—level of disclosure
  • Role of the trustees in relation to the side agreement

THIS PRACTICE NOTE APPLIES TO DEFINED BENEFIT OCCUPATIONAL PENSION SCHEMES

A contingent debt is a debt that is dependent on the occurrence of some future event. It is not immediately payable but may become payable in the future and is provable in insolvency proceedings.

Trustees’ unilateral powers

The trustees are given certain powers under the scheme’s trust deed and rules which can sometimes take the form of a unilateral power to carry out certain actions like:

  1. the setting of the scheme’s contribution rates (although due to over-riding provisions of the Pensions Act 2004 in relation to scheme funding, this effectively means that the trustees should consult the employer but do not need the employer’s consent. For more information, see Practice Note: Statutory funding regime and the interaction with scheme rules)

  2. the commissioning of an early valuation, or

  3. the winding-up the scheme,

if they are dissatisfied with the level of funding in the scheme.

Particularly, under the provisions of a scheme’s trust deed and rules, the trustees’ unilateral power to wind-up the scheme may arise on the occurrence of certain specified events including:

  1. on a change of control of the sponsoring employer

  2. where the trustees believe the scheme is ‘insolvent’ following actuarial advice (however, what is meant by ‘insolvent’ in this context is legally uncertain and a matter of debate)

  3. if the employer