16 June 2022

Commentary / Practical Considerations

TPR has agreed a settlement anti-avoidance case against the current owners of the bed manufacturer Silentnight.

The case was settled in February 2021 following the payment of £25 million settlement to the Silentnight Group DB Scheme ('the Scheme').

Burges Salmon acted for the pension trustees of the Scheme throughout.

The case involved TPR investigating the use of it 'moral hazard' anti-avoidance measures against American private equity firm, HIG, accusing it of placing Silentnight (the scheme employer) into an 'unnecessary insolvency'.

Case summary

Facts and background

In 2010 HIG made an offer of equity to members of Silentnight management in the event that HIG acquires Silentnight in return for exclusivity.

In 2011 HIG agreed to buy the Silentnight debt. In accordance with the terms of the debt sale agreement, Clydesdale (Silentnight's bank since 2003) informed Silentnight it would not renew the overdraft facility after February 2011.

In February 2011 a Conditional Share Sale Agreement between HIG and the shareholders in Silentnight was executed. A £10m on-demand revolving credit facility was entered into with Silentnight.

In April 2011 KPMG marketed the Silentnight business to potential buyers. Offers were made by interested parties, including HIG. HIG enters into an exclusivity agreement with a key Silentnight licensor.

In May 2011 the PPF rejected a CVA offer. Notices appointing administrators were filed, triggering a s75 debt to the Scheme for the amount of the Scheme’s full buy out deficit. HIG acquired Silentnight’s business and assets.

In December 2011 the Silentnight employers entered Creditors’ Voluntary Liquidation. TPR opens investigation.

TPR issued its first warning notice in 2014 for £17.2m targeting certain members and executives of HIG Group and various entities in the private equity firm.

TPR issued a second warning notice in June 2016 for £96.4m, which was the deficit of the scheme on a buy-out basis at the time of the employers’ administration.

In September 2016 TPR issued a judicial review claim.

The Court refused to grant permission for judicial review, as HIG had the alternative remedy of pursuing its arguments before the Determinations Panel.

In March 2020 the matter was referred to Determinations Panel by TPR.

In February 2021 TPR entered into a settlement agreement with HIG.

Summary of decision

TPR accused HIG of placing Silentnight into an 'unnecessary insolvency' alleging HIG used the control it had available via lending facilities to do this, and subsequently bought Silentnight back during administration at an undervalue. Consequently, the scheme was left without funding, forcing it to enter the PPF.

TPR, together with the Trustees supported by Burges Salmon used expert testimony and forecasts to demonstrate HIGs control and also Silentnight's likely post 2010 performance had HIG not had that control.

TPR’s case was that Silentnight would have refinanced and been able to fund the scheme, but for HIG’s involvement.

TPR submitted that the Determinations Panel did not need to be certain of exactly what would have happened in respect of Silentnight’s future business, and that TPR did not have to quantify the detriment caused to member benefits by the targets’ actions. The material detriment test in the legislation does not require certainty of detrimental effect, only likelihood.

TPR submitted that the HIG entities and individuals were 'connected with' or 'associates of' the sponsoring employers for the purposes of the Pensions Act 2004.

TPR’s case was that the grounds establishing association were:

  • The control HIG was given by the terms of the share sale agreement and revolving credit facility agreement.
  • HIG’s effective shadow directorship, in particular in relation to the CVA proposals
  • De facto directorship – that some directors of the sponsoring employers acted as if they were directors of the entity used by HIG to acquire the employers’ business and assets before they were formally appointed.

Each of these points was disputed by HIG.

Shortly before the scheduled Determinations Panel hearing, the targets made an offer to settle for £25m. Together with the liquidation proceeds from the insolvency process, the scheme will receive a total of approximately £35m.

Key legal principles

TPR’s case was brought on the premise that but for the actions of HIG, Silentnight would have refinanced and continued to trade profitably, supporting the scheme to pay or secure all of the benefits which had accrued to members

As such the second warning notice in this matter was for the Scheme’s full buy out deficit. This case therefor establishes that TPR warning notices may exceed levels of return to schemes limited to only an insolvency outcome analysis.


This case demonstrates that TPR are prepared to pursue regulatory proceedings where it sees conduct that it considers to be unacceptable.

Key contact

Clive Pugh

Clive Pugh Partner

  • Pensions Regulatory
  • Pensions Services
  • Pensions Legal Advice 

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