In BRASS Trustees Ltd v Goldstone the High Court has approved a decision by a scheme trustee to issue winding up petitions against the pension scheme's sponsoring employers.  The trustee sought the court's approval under rules which allow a trustee to seek the court's approval where the decision a trustee is about to make is "particularly momentous".

The trustee had decided to wind up the employer, subject to the court's approval, due to concerns about the employers' financial position and failure to meet their financial obligations to the scheme.  The trustee was concerned about "Scheme Drift", ie the risk of the scheme's funding position worsening over time if benefits continued to be paid in full from the scheme without employer contributions being made to reduce the deficit.  However, the scheme rules did not give the trustee power to terminate the scheme unless the scheme's Principal Employer had gone into liquidation, been subject to various other formal insolvency proceedings or entered into a voluntary arrangement.

The evidence before the court was that the scheme already had a substantial deficit and that the employers had failed to pay almost all sums due under the scheme's schedule of contributions since March 2020.  There were additional sums outstanding in respect of other agreements entered into by the employers regarding the payment of pension contributions.  The most recent statutory accounts filed by the employers were long out of date.  More recent accounts should have been filed, but were overdue by almost nine months.  The employers' core business was the delivery of water supply and treatment projects across the world.  However, funds from a key project had failed to materialise and the evidence before the court raised doubts as to whether the project would continue.

The judge approved the trustee's decision to issue a winding-up petition as one which the trustee could properly take.  The judge noted that the trustee had already concluded that its decision would be the same whether or not it had regard to the existence of the Pension Protection Fund (PPF).  He therefore considered that there was no need for him to make general observations as to the relevance or otherwise of the PPF.  However, the judge did then comment that the trustee could not have sought to take advantage of the existence of the PPF to justify failing to act to prevent further Scheme Drift.

Our thoughts

Where a scheme has a significant deficit, it is a well established principle that trustees should closely monitor the employer covenant and may need to take steps to prevent the scheme's financial position from worsening.  It is highly unusual for matters to get to the point that trustees issue a winding-up petition against the scheme's sponsoring employer, but this case illustrates that in extreme circumstances, this step may be an appropriate one to take.  In this case the scheme rules did not give the trustees a power to trigger a winding-up of the scheme unless the Principal Employer was the subject of formal insolvency proceedings or had entered into a voluntary arrangement.  The rules of some schemes give the trustees the power to trigger a scheme wind-up in a broader range of circumstances, for example following a failure by the employer to pay the contributions due.