The pre-pack administration arrangement for turkey producer Bernard Matthews seems to have been designed to “dump” its pension scheme, the Work and Pensions Committee (WPC) has been told.
On 20 September the company was sold to food tycoon, 2 Sisters owner Ranjit Boparan, for £87.5m in a pre-pack arrangement that involved a sale being negotiated shortly before the appointment of administrators.
This led to the Bernard Matthews Pension Fund entering the Pension Protection Fund assessment period on 26 September when the business went into administration.
While it is in administration, the sale proceeds of the company will be used to make full payments of money to stakeholders, which largely leave out workers or pensioners.
These include £46.4m to lenders Wells Fargo Capital Finance UK and PNC Financial Services UK, while Bernard Matthews' former owner, private equity firm Rutland Partners, is likely to receive a total of £39m. Meanwhile, the administrators have already billed £790,000 with legal fees likely to amount to £668,000.
In contrast, the pension fund recording a published deficit of £17.5m, is likely to have grown to £20m and will probably receive 1p in the pound at best.
The case raises questions about the balance of power between creditors and other stakeholders such as employees according to Sikka.
He wrote: "The administration strategy seems to have been carefully crafted to enable secured creditors and controllers of Bernard Matthews to extract maximum cash from the company and dump the pension scheme and other liabilities. No attention has been paid to the hardship caused to retired and existing employees."
However, Sikka noted as the administrators, Deloitte, have said the details of the sale "are confidential", therefore "nothing is known about the components of the sale or how the pension scheme liabilities will be addressed".
Under UK insolvency laws, administrators are not required to convene a meeting of creditors to consider the proposals for distribution of assets, but may do so if creditors of more than 10% of the total debts request it.
Sikka added the Bernard Matthews administrators have made it clear that they will not be convening a creditors' meeting.
The WPC's chairman, MP Frank Field (pictured above) said the committee will look into how pre-pack arrangements affect pensioners: "We expect that the government will soon publish a new Pensions Bill, and this may offer the committee an opportunity of proposing further reforms so as to protect better the position of pensioners in circumstances similar to Bernard Matthews."
In relation to Bernard Matthews Rutland made the following statement: "We have invested significant funds into the Bernard Matthews business and brand over the last three years in a continually challenging market. Whilst disappointed that the business has continued to struggle during our ownership we are pleased that it has now been acquired by Ranjit Boparan with access to a large, UK poultry group and that all the jobs have been preserved."
Deloitte said: "The sale secured the future of the business, with its resulting trading and employment opportunities in the region."
Pitmans pensions and corporate restructuring partner Denise Fawcett explained pre-packs are a legitimate way of maximising returns to creditors and saving jobs.
If a lender or investor has security then it will receive available funds ahead of unsecured creditors, which is not some underhand or mysterious arrangement designed to prefer these parties, she added.
However, she also said: "That is not to say that the system is not open to abuse and if that is the case, where a pension scheme becomes the victim of the process, it is for The Pensions Regulator (TPR) to consider using its ‘moral hazard' powers."
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