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Lord Skelmersdale: To an extent, it does, but the board should not be allowed to override the regulator, although there may well be circumstances in which the regulator should be allowed to override—perhaps I should say, "make forcible suggestions to"—the board. That is what the amendment would achieve; I may be coming from the wrong angle, but that is what I believe.
Baroness Hollis of Heigham: I do not believe so; I shall check the noble Lord's understanding, but mine
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is very clear. Once something enters into an assessment period, it is the responsibility of the board, not the regulator. Clause 128 gives a power to the board to validate an action that, without the power, would be illegal given Clause 127. It may be in the best interests of the scheme that the trustees be supported in that action. That is what the provision is about; I am a little puzzled that the noble Lord thinks that it could apply back to the regulator, but I will have a re-read on that and see whether his apprehensions are well founded.
Lord Skelmersdale: I am very grateful, and beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Baroness Hollis of Heigham moved Amendment No. 198A:
"( ) In subsection (1) the reference to the assets of the scheme is a reference to those assets excluding any assets representing the value of any rights in respect of money purchase benefits under the scheme rules."
The noble Baroness said: I beg to move.
Viscount Trenchard: I beg the Committee's indulgence to make some comment on the amendment. Like my noble friend Lord Higgins, I find that the Bill is becoming increasingly complicated and difficult to read. Has the noble Baroness wondered whether it might not be easier to exclude references to money purchase benefits by making it clear that such benefits do not apply in many parts of the Bill, rather than repeatedly excluding them time and again, which makes the Bill terribly difficult to read? So much of what one comes to is simply repetition.
I ask the Committee's forgiveness for my being pedantic but, in that connection, I notice that an attempt has been made to change benefits "under the scheme" to "under the scheme rules" throughout the Bill. I have thought about that, and think that benefits derive from the scheme itself rather than from its rules, which are simply a method whereby it operates. If we are to have "under the scheme rules" throughout, perhaps we should be consistent; "rules" is clearly missing from the fourth line of Amendment No. 195G, which we have already debated.
Baroness Hollis of Heigham: We had a debate during a previous Committee sitting—I shudder to think which one it was—on the difference between rules of a scheme and scheme rules. The rules of the scheme are the rules of the particular scheme, but scheme rules are the rules of the particular scheme as modified by the overriding social security legislation—the WRP Act and all the rest of it. I shall check to see whether the noble Viscount is correct in his assertion, but it is quite appropriate that on some occasions the Bill refers to rules of a scheme and on other occasions to scheme rules. I too wish that we had sharper descriptive language so that the ambiguity could be resolved, but that is the reason for it.
As for the repetition, we are in a dilemma. If we do not say something like, "Money purchase schemes are excluded" or "Money purchase benefits are excluded",
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I suspect—I shall have to take advice on it—that we would have to refer to the matter being understood in the content of Clause x(y)(z). I doubt whether it is clearer to have two items and four cross-references, as opposed to six items, but my hunch is that if we were to follow the noble Viscount's suggestion we would multiply the cross-references and reduce the shopping list. I suspect that people will find the shopping list easier to understand.
On Question, amendment agreed to.
Clause 128, as amended, agreed to.
Clause 129 [Board to act as creditor of the employer]:
Lord Hunt of Wirral moved Amendment No. 199:
The noble Lord said: We move on to Clause 129. I have become aware that many leading players in the world of accountancy are concerned about a lack of a clear procedure in the Bill for binding the board of the Pension Protection Fund clearly and explicitly into a collective creditor procedure. On that basis, I feel strongly that the clause needs to be strengthened and clarified.
The fact that the PPF board is not bound into company voluntary arrangements—CVAs—or Section 425 schemes of arrangement was referred to in a previous debate, as the Minister may recall. The concern on the point is that it in effect gives the PPF board a form of super-priority over other creditors. That would mean that it would be able to negotiate its own terms—terms that might be very much better than those available to other, unsecured creditors. In fact, it would be able to hold other creditors and the insolvency practitioner involved to ransom.
In turn, that detracts from the established principle in insolvency of equal treatment of creditors in the same class, and is likely to influence exit routes towards liquidation, in which the PPF board of course does not have a priority. I am troubled that that again appears to be an instance of where the Bill is in direct conflict with the Government's stated aim of encouraging enterprise and the rescue of viable businesses in trouble.
The noble Baroness may remember, although it was the noble Lord, Lord Sainsbury, who took the then Bill through, that to that end the Enterprise Act, among other things, abolished the Crown preference in insolvencies. That was a balancing exercise, but it was seen as a step in the right direction. It improved returns to unsecured creditors. However, an apparent super-priority of the PPF board would establish the Crown preference in another form, which would ultimately be to the detriment of unsecured creditors.
The amendment would delete, on page 89, subsection (6)(b), which concentrates on arrangements that have effect under Section 425 of the Companies Act 1985. I am sure that the Committee will recall Section 425, which gives a company power to compromise with creditors and members. It provides for a company to enter into an arrangement with its creditors or any class of creditors. The compromise
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has to be agreed by creditors representing three-quarters in value of the debt, and is then sanctioned by the court. We are not dealing with some ad hoc arrangement, but with a scheme of arrangement that has to be approved and sanctioned by the court. The company does not have to be insolvent to enter into a Section 425 scheme of arrangement, of course.
If the board is unhappy with a proposed arrangement, which may well be in the minds of those who drafted the clause, it would have the opportunity to oppose it and have its views heard in court. The amendment should maintain the viability of Section 425 schemes and give the PPF board a full opportunity to have its views considered. I beg to move.
Baroness Hollis of Heigham: The issue is difficult; a lot of the issues that we are discussing are, but there is a genuine and honourable dilemma on this matter. I shall set the background. Amendment No. 199 seeks to remove the provision for the board not to be bound by any terms of a scheme of arrangement as defined, as the noble Lord said, by Section 425 of the Companies Act 1985 previously entered into by the trustees or managers of a scheme where that scheme compromises a claim for the contingent debt owed to the pension scheme—in other words, to which the PPF is not a party. That is why I say that we have a genuine and honourable dilemma.
This area of the Bill is designed to protect the PPF from being duty bound to take on increasing liabilities with a reduced claim against the assets of the employer. If the employer enters into a scheme of arrangement—commonly called a compromise agreement—during the assessment period which results in the rescue of the employer, that would end the assessment period and the PPF involvement with the scheme, as there is now a solvent sponsoring employer and a scheme rescue has occurred. If there is a subsequent insolvency event in relation to the sponsoring employer, another assessment period would begin.
If the scheme compromised the contingent debt to the scheme, the PPF should not be bound by that compromise unless it has consented to it because, first, the compromise agreement may considerably reduce the money which is recoverable from the sponsoring employer, therefore reducing the payment to the PPF if the PPF were to assume responsibility for the scheme. Secondly, if the board were to be bound by any agreement entered into by the trustees of a pension scheme to compromise the contingent debt to the pension scheme before the assessment period begins, that could raise moral hazard issues. For example, the trustees could enter into a scheme of arrangement with the sponsoring employer which would absolve the employer from ever having to pay the full Section 75 debt. The trustees could essentially take any steps necessary to try to keep the sponsoring employer in operation, in the knowledge that the scheme was ultimately protected by the PPF. The Committee can see what depth of issue lies behind that situation.
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The dilemma is genuinely honourable, and I am not persuaded that to say that the PPF can revisit the issue by going to the courts, given the cost, the length of time and so on, is a satisfactory way of allowing it to destabilise a compromise arrangement that has been made without it being party to it, and which appears to be at the expense of the assets that come into the PPF or increases the liabilities that come into it. That said, we are aware that—thanks to the efforts of the noble Lord, I think—the Institute of Accountants in England and Wales has raised concerns about the approach; he echoed them today. We are involved in discussions with it, the DTI and the Insolvency Service.
Further, we would like to complete our consultations after our initial discussions, because we may well need to return on Report with an amendment. I do not yet know whether that would be one along the lines suggested by the noble Lord or some alternative. I agree that this is not the last word on the issue. In the light of our consultations, it is clear that we need to go further. I suspect that we will come back with an amendment, and I shall try to make sure that the noble Lord and others are given plenty of notice about what that might look like, to see whether it meets his concerns. I hope that he will recognise where we are coming from as a department, which is to ensure that—if I can put it crudely—the PPF does not end up being stitched up. We do not wish to see that happen. I hope that the way I have suggested that we go forward in seeking to balance perfectly honourable but possible conflicting responsibilities and obligations may be a way to progress the issue.
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