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Speaker
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Transcript
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Chris Brown, Director, Burges Salmon
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Hello and welcome to episode 2 of the Burges Salmon Pensions Pod, our fortnightly podcast on pensions news, insights from our practice and tips and tricks for trustees and employers. I'm Chris Brown, a Director in the Pensions team. Last week we looked at actions that trustees can take in response to the Pension Schemes Act 2021 powers, and also when it might be right to consider enforcement against your employer. If that sounds interesting then please do look at our website.
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Helen Cracknell, Solicitor, Burges Salmon
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I'm Helen Cracknell, a Solicitor in the Pensions team. In today's podcast we'll be discussing how the Pension Schemes Act 2021 will affect corporate transactions.
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Chris
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Yes, and in particular we are considering the changes to the notifiable events regime, and of course on timings there's two aspects to that. The first is enforcement and the changes to enforcement stronger powers for the regulator and tougher penalties for non-compliance with the existing notifiable events regime, that's all already in force and we'll come on to discuss a bit of that later on.
But secondly the DWP's consultation on the new notifiable events has recently closed at the end of October, so where we are with those is that we've got draft regulations which say that the new need for notifiable events will come into force on the 6th of April 2022, so as you listen to some of the discussion in this podcast please bear in mind and that 6th of April 2022 is a current expectation and of course the draft regulations might change, we're waiting for the response from the consultation and also, I suppose, it's possible the time scales might change.
Right so with that backdrop, Helen over to you.
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Helen
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Our first guest today is Kate Granville Smith, a Senior Associate in our Pensions team. Kate, welcome to the podcast.
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Kate Granville Smith, Senior Associate, Burges Salmon
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Thank you for having me.
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Helen
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Kate could you tell us more about the proposed changes to the notifiable events regime?
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Kate
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Yes of course, by way of reminder the notifiable events regime was introduced by the Pensions Act 2004, though it isn't a new concept. The idea behind it is that the regulator has advanced notice of events that could risk a call on the PPF. So employer events which could potentially be notifiable include breaches in banking covenant or decision to cease business in the UK.
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Helen
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I agree and there are events that trustees have to notify themselves too, like a decision to make a large transfer out or when they're completing a flexible apportionment arrangement.
So what new corporate activities will be called in particular?
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Kate
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There are two new notifiable events to be aware of. These are a sale of an employer or a material proportion of the business or assets, and the granting or extending of relevant security by the employer over its assets. So these two new notifiable events, plus one existing one, there are new more stringent requirements. The existing one is a decision by a controlling company to relinquish control of a sponsoring employer or where there is an offer to require control of the employer. I'm going to call these three 'special notifiable events'. For these special notifiable events notification will need to be given to the regulator at an earlier stage, namely when a decision in principle has been made.
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Chris
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Okay thanks Kate, so that's a really interesting timing point there. So I'm going to introduce our second guest for today, Nick Graves, a Partner in our Corporate team.
Nick could you tell us from your perspective what the milestones in a typical corporate transaction are and at what stage a decision in principle might be said to occur?
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Nick Graves, Partner, Burges Salmon
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Thanks Chris, yes, well the key milestones on a corporate transaction are normally signing heads of terms, granting exclusivity, or at the end of the process, signing the sale and purchase agreement.
So, it's not immediately obvious against those three normal milestone events when a company would have taken a decision in principle, so you progress a transaction, it will though be before heads of terms are signed, as the definition of a decision in principle makes it clear that this is a decision prior to any negotiations or agreements being entered into with another party and that's just a direct read from the regulations which are in draft. So which might indicate that the decision and principles been taken include appointing a corporate finance adviser to market the assets, perhaps sending an information memorandum out to a number of potential bidders, or appointing a board committee to manage the transaction. A formal board or committee resolution authorizing the sale would definitely be sufficient, even if the precise details of the deal are unknown.
I think the corporate finance community would really welcome some guidance on this.
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Chris
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Yeah I absolutely agree with you, I think guidance would certainly be helpful, and we are waiting for further information.
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Helen
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So the employer would need to notify at an early stage.
Kate, do they then need to update the regulator when further details are known?
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Kate
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For the special notifiable events there is an added obligation for the employer to give notices and statements to the regulator at the point that main terms have been proposed.
A copy will need to be provided to the trustees at the same time. The statement must set out the implications for the scheme and how any risks will be mitigated. This information will be required at a later point than the notifiable event notification when there's a greater certainty as to whether the transaction is going ahead, its nature and its implications for the scheme.
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Chris
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Okay so Nick, back over to you, what steps in a corporate transaction would you say might indicate that the main terms of a deal have been proposed?
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Nick
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Thanks Chris, I think in practice this will probably be when heads of terms have been signed, or if there's an auction process when a preferred bidder is appointed following submission of offer letters by all those involved. In either case the key financial terms of the deal will be set out together with other material headline terms. So although the heads will not cover everything, it's likely they will contain the main terms of the deal. I think it's easier to establish when the main terms of the deal have been proposed, than when a decision in principle has been taken.
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Chris
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Yeah I think you're absolutely right and I suppose the key takeaway there is to wait for more information as guidance becomes clearer, and think about pensions notifications nice and early in any transaction.
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Helen
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Thanks Chris. It's worth noting that the definitions of relevant security or what a material proportion of a business would be and even some of the underlying concepts may still change as they aren't settled law at this stage. One interesting point to mention in passing is who is responsible to notify.
So this is the employer, but the regulations are expanding the duty to connected and associated parties for the special notifiable events. So a point that some people might not be quite so live to, is that often the guarantees are drafted so that the guarantor must notify as if it were an employer. And all this means that the notifiable events regime can apply very broadly.
Kate, turning back to you, what about confidentiality? Do you think that's a concern?
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Kate
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Employers who may be concerned about confidentiality around a proposed transaction in the future may like to ensure that any confidentiality or non-disclosure agreements with trustees are reviewed and updated if necessary. Understandably, employers may be concerned where information is price-sensitive, and it will be particularly important for such employers to take advice and ensure that they have the necessary safeguards in place.
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Chris
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Kate are NDAs straightforward to put in place would you say?
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Kate
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Yes Chris, well usually they are, the important thing will be for the employer to obtain advice and make sure that they are drafted in a legally binding form, and cover the sort of events that they are interested in protecting.
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Helen
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Thank you Kate. NDAs are notoriously difficult to enforce, but in this context they're generally a good thing as they turn parties’ minds to confidentiality and conflicts.
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Chris
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Okay so, put an NDA in place to share information with the trustees and then you can share information about potential notifiable events, and if you are notifying, or you're not notifying, what are the consequences if the notifiable events obligations are not met?
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Kate
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It's worth noting that the regulator will have additional powers to ensure compliance with the notifiable event regime, including issuing fines of up to a million pounds or an unlimited fine in up to two years in prison for knowingly or recklessly providing false information.
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Chris
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Yeah goodness there's some strong powers there and potential consequences for people, so complying with the notifiable events regime is very, very important.
So I guess to sum up, it seems there's a lot to consider here at an early stage when corporate activity is on the horizon so, what are the key takeaways for corporates do you think?
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Kate
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Well the key message is really to take advice and liaise with the trustees at an early stage in the process there really isn't such a thing as too early the advice will need to cover the notifiable events regime but also the potential for contribution notices to be imposed and criminal offences to be committed and the defences for these. We've not covered these in the podcast today, but it's important that employers bear these in mind. So be prepared to consider whether there could be any mitigation offered to the scheme, even if corporate activity is not on the horizon right now, it wouldn't hurt to ensure that there are appropriate non-disclosure obligations in place now, with the individual trustees so that putting such agreements in place does not hold up a deal. It's worth also training the key people in your business.
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Helen
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Thanks Kate, and also our new Burges Salmon triage tool is relevant to all of this. Could you tell our listeners quickly about that?
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Kate
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Burges Salmon has developed an interactive triage tool to help trustees and employers assess the implications of an event. This may be useful even if corporate activity is not envisaged at the moment, so that those who may be affected can get up to speed on all the issues.
It is also useful to bear in mind that the regulator has a new power to request documents or information and also inspect premises, so it's worth the relevant people being aware of these powers.
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Chris
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Yeah absolutely, lots of changes that it's important for trustees and employers to get their head round.
So that's it from us on the notifiable events changes for now, there's more information to come. Thank you Kate and Nick for joining us today, it's been a really interesting discussion.
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Helen
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Thank you for listening to the Burges Salmon Pensions Pod.
If you'd like to know more about our Pensions team, and how our experts can work with you, you can contact myself, Chris or any of our team via our website. If you enjoyed this podcast you may also enjoy listening to our next episode which will cover the interaction between trustees’ pensions duties and charitable law where there is a charitable employer.
This will be available on Apple, Spotify or wherever you listen to your podcasts. Don't forget to subscribe and thanks for listening.
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