The Corporate Insolvency and Governance Act 2020 (CIGA), which came into force last July, may have a significant impact on employers in financial difficulties, and in particular the treatment of their underfunded defined benefit pension schemes when entering into one of two new rescue procedures created by the act: moratoriums and restructuring plans.

Neither procedure is a ‘qualifying insolvency event’ for the purposes of entry into a Pension Protection Fund (PPF) assessment period. However, this doesn’t mean that the PPF isn’t interested in them; quite the opposite in fact.

The reasons for this is that for as long as there is PPF drift, there is risk to the PPF (and its levy payers). If that drift is not being met by the employers funding the scheme, then ultimately if that employer does fail and undergo an insolvency event, the PPF picks up the tab.

The PPF recently issued interim guidance on CIGA, setting out its approach to the two new procedures introduced by the act and its expectations on the parties involved. New regulations gave the PPF a seat at the table by exercising the voting rights of the trustees under CIGA.

It will consult with the trustees when exercising those rights, and the guidance states its expectation that it is kept fully informed throughout. If the PPF votes to allow a moratorium to be extended then it needs to be sure that there is a strong likelihood that the company will survive as a going concern. And if it votes in favour of a restructuring plan, it will apply the same principles as if this was a company voluntary arrangement.

A restructuring plan must not be used to abandon scheme liabilities and we would expect The Pensions Regulator to pay it close scrutiny too if this might be the case.

It is very early days for both procedures (only a handful have taken place to date), but as lockdown eases, directors will need to reassess what it means to be a going concern, in particular if deficit repair contributions that had been deferred last year are scheduled to restart.

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