PPF issues first guidance on CVA expectations
The Pension Protection Fund (PPF) has published its first official guidance on how it expects companies seeking company voluntary arrangements (CVAs) to set out their proposals.
The lifeboat fund's guidance is the first paper published by its restructuring and insolvency team to directly outline its approach to CVAs, and the approach employers and their advisors should take when presenting their proposal.
When an employer, or all employers in the case of a ‘last man standing' scheme, lodges a CVA proposal in court, a PPF assessment period will commence and from then on, the PPF is given the right to vote on the proposals on behalf of the pension fund, making its support or opposition significant. If the scheme is in a ‘last man standing' arrangement, and not all employers have lodged CVAs, the scheme retains the right to vote.
Recent months have seen a marked increase in the use of CVAs, and while the majority are aimed exclusively at addressing issues with an employer's property portfolio with the intention of leaving other creditors, the PPF will often seek assurances about the future funding of an employer's defined benefit (DB) scheme.
Following a number of recent cases where the PPF exercised its voting rights - such as with Toys R Us and Mothercare - the guidance highlights the issues that should be considered so that it can decide whether it should vote in favour of the proposal.
For example, the guidance states that employers proposing a CVA must show how they have addressed a number of key points, including: management team's experience and expertise; planned dividend payments; mitigation in addition to deficit reduction contributions to protect against PPF drift; and the anticipated PPF levy during the period of the CVA proposal.
They must also show the level of risk inherent in the scheme's investment strategy; the steps being taken to de-risk the pension scheme to reflect the additional risk posed by the CVA process; and the possible exit route for finance providers and/or equity.
The PPF also stated it expects trustees to report on the areas of concern set out in the guidance.
Its director of restructuring and insolvency Malcolm Weir said the PPF does not agree to CVAs lightly. "The guidance will help to ensure employers can address the areas of concern for the PPF at the outset and make the process more efficient," he said. "As ever we welcome early engagement when proposals are made."
Weir's predecessor Richard Favier added: "In recent months the PPF has been given proposals it would not have been happy with. For example, the Toys R Us one failed fairly rapidly.
"So what the PPF is really saying is if you're going to give us a proposal give us one that looks as if it might work, and is fair."
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