More than half (57 per cent) of pension professionals believe powers given to The Pensions Regulator (TPR) in October 2021 mean defined benefit (DB) schemes can expect to achieve a better outcome in a multi-creditor restructuring scenario, industry research has revealed.

The survey, conducted jointly by Herbert Smith Freehills and Grant Thornton, also suggested that this is particularly significant given that almost all of those surveyed (92 per cent) expect the incidences of corporate distress to increase over the next 12 months.

However, nearly two thirds (65 per cent) of pension and restructuring professionals also thought that the changes to the UK insolvency regime made in 2020 have increased the likelihood of a successful restructuring being achieved in a distress scenario.

Overall, 62 per cent felt that the UK's insolvency regime strikes a fair balance between lenders and DB schemes, while 24 per cent felt the regime favours lenders to the detriment of DB schemes, and 13 per cent believe the regime favours the interests of DB schemes over lenders.

Commenting on the findings, Herbert Smith Freehills pensions partner, Rachel Pinto, suggested that lenders and other corporate creditors are "clearly alive" to the risks posed by TPR's enhanced powers and the need to have regard to the interests of any DB pension scheme involved in a restructuring scenario.

"Failure to do this could lead to an investigation by the regulator, financial penalties or, in a worst-case scenario, a criminal prosecution," she continued,.

However, Grant Thornton partner, Paul Brice, pointed out that successful multi-creditor refinancings and restructurings require key stakeholders to understand the commercial and legal needs of other participants in the deal.

"These may not always be obvious," he added, "but a failure to get inside each other’s heads can lead to unnecessary heat and light and, potentially, value destruction”.

In light of these concerns, Herbert Smith Freehills and Grant Thornton have partnered on a series of workshops for trustees, lenders and bondholders to help stakeholders affected by corporate distress understand one another's perspectives.

This initiative was welcomed by TPR director of supervision, Mike Birch, who stated: “Restructurings are complex and time-pressured. Misunderstandings between stakeholders can make an already critical situation harder to resolve positively.

“While TPR stands ready to intervene and to use our powers, it should be possible to resolve most situations without formal action. That’s why I welcome this initiative to help banks and trustees to understand each another’s positions and to work constructively together in future restructurings.”

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