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Lord Higgins: My Lords, it may be that the noble Baroness is anticipating later amendments on trustees and member trustees. However, what is not clear from the case she is now putting forward is its relationship to the debate we had the other day on the moral hazard clauses so far as concerns the clearance procedure. I understood the suggestion to be that in certain
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circumstances the board or the trustees might apply for clearance. Perhaps, in her reply, the Minister could make clear what the situation is.
Lord Lucas: My Lords, what interests me about this amendment is whether in order for a scheme to get into the fund, the employer has to go through the process of receivership—with all the damage that that implies for the business and employment prospects—or whether it is possible for a scheme to be accepted into the fund through some other form of restructuring. Such a restructure would certainly destroy all the shareholder value, but would not destroy the business in the same way as receivership. While the shareholders would come out with nothing—so there is no incentive for them to encourage kicking the scheme into the fund—I wonder whether the events that the company must go through in order for the scheme to go into the fund do not have to be those of receivership. Rather, it could be done through administration. That is so much better both for the business and for the continuing employees. I am anxious to understand the point and I support the noble Baroness, Lady Turner, in looking for that.
Baroness Hollis of Heigham: My Lords, what has been reflected by the speeches made in support of the amendment and in moving it suggests a misunderstanding of exactly what the amendment would do.
Clause 127 provides for those schemes whose sponsoring employers are unable to become insolvent using the definitions in Clause 119, such as public bodies whose pension schemes do not have a Crown guarantee. I refer to the Arts Council, British Waterways and so forth. Because those employers are technically unable to become insolvent, they are therefore unable to trigger the start of an assessment period even when the body is clearly not continuing as a going concern. However, the remarks of the noble Lord, Lord Lucas, envisaged a different effect.
The amendment tabled by my noble friend would enable schemes such as I have described to apply to the board if they believed the employer would become insolvent unless the trustees waive the debts owed to the pension scheme. I assume that the intention of my noble friend's amendment was to enable all schemes to apply to the board, whether or not the employer would be subject to insolvency events as defined in Clause 119, but where the trustees waiving the debt—possibly as part of a compromise agreement—would enable the employer to avoid insolvency and therefore continue as a going concern. The practical effect of this would be for the PPF to have to determine whether or not an employer would have been able to continue as a going concern had a compromise agreement not been met. This could be very difficult to determine and might be open to manipulation.
However, I share my noble friend's concerns about the jobs of people whose employers are in serious financial difficulty due to the debt owed to their pension schemes and the concern that members of those schemes should receive at least the PPF level of benefits. I believe that we
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already have mechanisms in place to enable businesses to continue as going concerns, thus saving people's jobs, while also ensuring that pension scheme members receive at least the PPF level of benefits.
I should like to remind noble Lords of previous debates in Committee on compromise agreements, on which I was pressed by the noble Lord. As I mentioned during that debate, where a company is in such financial difficulty that it is not possible to put in place a recovery plan for the pension scheme, it will be possible for the scheme to enter into a company voluntary arrangement, a CVA. This is a form of business rescue designed to keep an employer continuing as a going concern.
The calling of creditors for a CVA is also an insolvency event as defined in Clause 119; as such it will trigger the beginning of an assessment period. If a company were to set up a successful CVA, which we would hope, the employees would be able to keep their jobs and the members of the associated pension scheme would receive at least the PPF level of benefits.
I hope I am able to give my noble friend the assurances she seeks. But we believe it is more appropriate for compromise agreements to take place as part of a formal administration, or a CVA to ensure entry into the PPF, rather than leaving it to the board to determine which compromise agreements would make a scheme eligible for entry to the PPF. My noble friend's amendment as it stands addresses a problem which is quite limited. I suspect she and the noble Lord, Lord Lucas, were concerned about the wider issues raised so I have trespassed beyond the scope of the amendment to seek to answer them. I hope that I have answered any queries but if not, I am happy to return to them.
The noble Lord, Lord Higgins, raised a query about clearance. Clearance is in case of avoidance of contribution notices and financial support directives from the regulator. It is not directly related to PPF eligibility.
Baroness Turner of Camden: My Lords, I thank my noble friend for that response and other noble Lords who have contributed to the debate, including the noble Lord, Lord Lucas. It was the intention to try to deal with a situation where otherwise jobs would be lost. The intention was to try to maintain a company in existence as an employer of the members of the pension scheme. As I said earlier, I am quite confident that trustees who were properly trained would act responsibly in that respect. However, I do acknowledge that there could be difficulties to which my noble friend has responded. I shall study very carefully what she has said. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 135 [Board to act as creditor of the employer]:
Baroness Hollis of Heigham moved Amendment No.142:
On Question, amendment agreed to.
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Clause 141 [Board's obligation to obtain valuation of assets and protected liabilities]:
Baroness Hollis of Heigham moved Amendment No. 143:
"(2A) For those purposes, regulations may provide that any of the following are to be regarded as assets or protected liabilities of the scheme at the relevant time if prescribed requirements are met—
(a) a debt due to the trustees or managers of the scheme by virtue of a contribution notice issued under section 39, 46 or 54 during the pre-approval period;
(b) an obligation arising under financial support for the scheme (within the meaning of section 45) put in place during the pre-approval period in accordance with a financial support direction issued under section 43;
(c) an obligation imposed by a restoration order made under section 51 during the pre-approval period in respect of a transaction involving assets of the scheme."
The noble Baroness said: My Lords, in moving Amendment No. 143, I shall speak to the other amendments grouped with it. I shall be brief but I shall seek to answer any particular queries that noble Lords may have.
This group of amendments amends Clause 141 which sets out the board's obligation to obtain a valuation of assets and protected liabilities. The group also includes necessary consequential amendments to Clauses 149 and 156 in order that they are made consistent with amended Clause 141.
These amendments ensure that the valuation will take account of any contribution notices, financial support directions and restoration notices imposed by the regulator using its moral hazard powers. Without these amendments the PPF could be called upon to assume responsibility for schemes which, had these been taken into account, could have been wound up outside the PPF to the benefit of members. In other words, we are bringing into the balance sheet the contribution notices, financial support directions and so forth. This is consequential on the proposals we have made on the moral hazard clauses. If noble Lords wish, I could go into detail but these amendments are benign and sensible. They make sure that all assets are properly taken into account. I see that from a seated position I have the support of the noble Baroness, Lady Noakes, which reassures me enormously.
On Question, amendment agreed to.
Baroness Hollis of Heigham moved Amendments Nos. 144 to 148.
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