Legislation sets out what the Pension Protection Fund will consider as an insolvency event. These are consistent with the provisions of the Insolvency Act 1986, and have been developed in consultation with the Insolvency Service.
Insolvency events vary depending on whether an employer is an individual , a company or a partnership. More details are below.
Some employers may have a status that excludes them from having an insolvency event. These employers' schemes may still be able to enter an assessment period (see Section 128 of the Pensions Act 2004).
Most formal insolvency proceedings are covered with the main exception being a members’ voluntary liquidation. This is because a members’ voluntary liquidation is a solvent form of liquidation and is, therefore, not appropriate for consideration for compensation.
When an insolvency event occurs in relation to the employer of an occupational pension scheme, the insolvency practitioner has a duty to notify the Pension Protection Fund, the Pensions Regulator and the scheme trustees or managers about the occurrence of the insolvency event.
The role of the insolvency practitioner is set out in legislation (Sections 120-122 of the Pensions Act 2004), including details of who should be notified of an insolvency event in relation to the employer of an occupational pension scheme, the form and content of the notice and the timeframe in which that should be done.
If an insolvency event relates to the employer of an eligible scheme and is a qualifying insolvency event (ie has occurred after 6 April 2005) then this will trigger the beginning of an assessment period. During this period the Pension Protection Fund will assess whether or not it must assume responsibility for the scheme.
The insolvency practitioner’s role is therefore vital in informing the Pension Protection Fund, the Pensions Regulator and trustees or managers of the scheme about the insolvency event and in triggering action to determine whether the scheme qualifies for the Pension Protection Fund.
Having submitted a notification regarding the insolvency event, the insolvency practitioner is then required to issue a further notice when he can determine whether a scheme rescue either has occurred or is not possible (according to the criteria set out in Regulations).
The length of time between the insolvency event occurring and this notice being issued depends on the circumstances of the employer, the complexity of its affairs and what form of insolvency proceedings it has entered into.
Insolvency events in relation to an individual
Section 121(2) & Regulation 5 of the Pension Protection Fund (Entry Rules) Regulations 2005
An insolvency event occurs in relation to an individual where:
a) he is adjudged bankrupt or sequestration of their estate has been awarded;
b) a nominee submits a report to the court pursuant to section 256(1) or 256A(3) of the Insolvency Act 1986 stating his opinion that a meeting of the creditors should be called to consider the proposals;
c) a deed of arrangement made by or in respect of the affairs of the individual is registered in accordance with the Deeds of Arrangement Act 1914;
d) he executes a trust deed for his creditors or enters into a composition or contract;
e) he has died and:
i an insolvency administration order is made, or
ii a judicial factor appointed under section 11A of the Judicial Factors (Scotland) Act 1889 is required by that section to divide the individual’s estate amongst their creditors.
Insolvency events in relation to a company
Section 121(3) & Regulation 5 of the Pension Protection Fund (Entry Rules) Regulations 2005
An insolvency event occurs in relation to a company where:
a) the nominee under Part 1 of the Insolvency Act 1986 either:
i (who is not the liquidator or administrator) submits a report to the court stating his opinion that meetings of the company and its creditors should be summoned to consider the proposal; or
ii (who is an administrator or liquidator) summons a meeting of the company and its creditors to consider the proposal;
b) the directors of the company file (or in Scotland, lodge) with the court documents and statements which begin a moratorium where the directors propose a voluntary arrangement;
c) an administrative receiver is appointed in relation to the company;
d) the company enters administration;
e) a resolution is passed for creditors’ voluntary liquidation or an administrator issues a notice which converts the administration to creditors voluntary liquidation;
f)a creditors’ meeting is held which converts a members’ voluntary liquidation into a creditors’ voluntary liquidation;
g) a winding up order is made or an administration is converted to winding up by court order.
‘Insolvency events’ in relation to a partnership
Section 121(4) & Regulation 5 of the Pension Protection Fund (Entry Rules) Regulations 2005
An insolvency event occurs in relation to a partnership where:
a) an order for the winding up of the partnership is made or an administration is converted to a winding up by court order;
b) sequestration is awarded on the estate of the partnership under section 12 of the Bankruptcy (Scotland) Act 1985 or the partnership grants a trust deed for its creditors;
c) the nominee under Part 1 of the Insolvency Act 1986 either:
i (who is not the liquidator or administrator) submits a report to the court stating his opinion that meetings of the partnership and its creditors should be summoned to consider the proposals; or
ii (who is an administrator, liquidator or trustee) summons a meeting of the company and its creditors to consider the proposal;
d) the members of the partnership file with the court documents and statements which begin a moratorium where the members propose a voluntary arrangement;
e) the partnership enters administration.