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	England and Wales High Court (Chancery Division) Decisions
You are here: BAILII >> Databases >> England and Wales High Court (Chancery Division) Decisions >> L & Ors v M Ltd [2006] EWHC 3395 (Ch) (27 October 2006) URL: http://www.bailii.org/ew/cases/EWHC/Ch/2006/3395.html Cite as: [2006] EWHC 3395 (Ch)

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IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

		Royal Courts of Justice Strand London WC2A 2LL
		27 October 2006

Introduction

1. The claimants in this case are the Trustees of the M Ltd Pension Scheme ("the Trustees" and "the Scheme" respectively). The defendant is M Ltd ("the Company") which is the principle employer and only employer under the Scheme.
2. The Trustees, by their claim form issued on 9 October 2006, seek a ruling on the meaning of a single provision of the Pension Protection Fund (Entry Rules) Regulation 205 ("the Entry Rules") namely Regulation 2(2) which I will refer to as Regulation 2(2) throughout this judgment.
3. In particular, they ask whether certain proposals relating to the re-financing of the Company (which I will come to in a moment) are such as to render the Scheme ineligible for entry into the Pension Protection Fund ("the PPF") as a result of Regulation 2(2). Those proposals contain an element concerning pensions which I will refer to as the "Pension Proposal".
4. The Board of the PPF is a statutory corporation established under chapter 1, part 2 of the Pensions Act 2004 ("the Board"). Since the Board and the PPF are affected in a vital way by this issue, the Trustees' solicitors have been in communication with the lawyer to the Board to seek its view on the Pension Proposal. The trustees have served the claim form on the Board pursuant to CPR 19.8(a). The Board has indicated that it will not acknowledge service saying that it has no objection to the Pension Proposal. In those circumstances, it will be bound by my decision.
5. The PPF is funded by compulsory statutory levies on schemes which are eligible for entry. In the absence of the Board, the question arises whether this application should be heard in the absence, too, of representative defendants in the form of the Trustees of one or more such schemes. However, this matter is commercially of the greatest urgency. Further, the entity which one might think would be most concerned to ensure that an ineligible scheme should not obtain entry into the PPF, namely the Board, seems to consider that there is no objection to allowing the Scheme to enter the PPF pursuant to the Pension Proposal provided that the Pensions Regulator (of whom I will say more later) consents.
6. In those circumstances, the Trustees have taken on the role of opposing the submissions of the Company and to put the points against allowing the Scheme to enter the PPF. I am quite sure that Mr Newman, who appears for the Trustees, has put all the points which can sensibly be put against the Company's arguments and has done so forcefully. I should, however, make clear that the Trustees are not opposed to the Pension Proposal but simply wish to be sure that if they agree to them (and they cannot take effect without the Trustees' agreement) there is no risk that they will thereby jeopardise the eligibility of the Scheme to enter the PPF.
7. The evidence in front of me is commercially highly confidential. I, accordingly, heard this case in private and I will deal after this judgment with applications under CPR 5.4 to restrict access to the court file and this judgment.

The relevant factual background

8. I take this very largely from Mr Simmonds' helpful skeleton argument at paragraphs 5 to 7.
9. The Company provides certain components to manufacturers. The Company forms part of a multi-national group. The Company employs about 550 people in England.
10. The Company has made losses over the last five financial years but has hitherto been able to rely on financial support from the group to maintain its operations. However, a significant downturn in the fortunes of the group has meant that the Company cannot continue to rely on that support. The Company has, accordingly, had to consider whether it would be able to continue as a standalone business without group support.
11. The Company's directors, having considered a report by PwC, have concluded that the Company's survival is dependant on implementing a restructuring plan which embraces three principle elements, otherwise, the Company will have to enter into some form of insolvency process and the jobs of its 550 employees (274 of whom are scheme members) will be at increased risk. Those elements are,

a. firstly, the release of the Company from its current obligation to service its £16.2 million indebtedness to a banking syndicate led by the Royal Bank of Scotland and from its intra-group indebtedness.

b. Secondly, the release of the Company from its financial obligation in relation to the Scheme. The Company is currently the sole participating employer in the Scheme which has a funding shortfall of approximately £9.5 million on the FRS 17 basis and of approximately £38 million on an annuity buyout basis.

c. Thirdly, the implementation of a revised business plan which will produce sufficient income to enable the Company to continue with a standalone business. The business plan does envisage some redundancies but far less than would be the case if the Company were forced into insolvency.

The Pension Proposal

12. The proposal contains, as I have mentioned, the Pension Proposal. The proposal will proceed only as a co-operative exercise between the Company and the Trustees, the Board and the Pensions Regulator. There is no question (as Mr Simmonds for the Company puts it) of the Company seeking or being able unilaterally to offload its pensions liabilities. In essence, the Pension Proposal is that the Company's contingent liability to meet the £38 million buyout deficit on a winding up of the Scheme will move to a newly established company (Newco) which will then suffer a qualifying insolvency event and the Scheme will enter a PPF assessment period. I will explain these terms later.
13. The effect of the Pension Proposal, if successfully implemented, will be as follows:

a. Firstly, scheme members' benefits will be largely safeguarded. The level of benefit which will be payable to members by way of PPF compensation will substantially exceed that which would be payable on a winding up of the Scheme outside the PPF.

b. Secondly, the Company will be able to continue trading, thereby improving the future job prospects of many, if not, most of its 550 employees.

c. Thirdly, part of the financial burden from which the Company is released will pass to the PPF.

However, the restructuring proposal will provide as a quid pro quo for the PPF to take an equity stake in the restructured business. The size of that stake remains subject to discussion.

14. The essential steps in the Pension Proposal from a technical or mechanical point of view are as follows, those steps being understood in the context of the complex statutory framework which I will have to deal with in a moment:

a. The Scheme will be reopened for a short period to enable Newco to become a participating employer. The purpose of this is to convert the Scheme into a multi-employer scheme for the purposes of the Pensions Act 2004. Newco will in fact have an active employee or a few active employees to ensure that that occurs.

b. The Scheme rules will be amended so as to provide that on a future winding up of the Scheme, the buyout deficit will be apportioned for the purposes of section 75 of the Pensions Act 1995 ("section 75") as follows; £1 to the Company and the balance to Newco.

c. The scheme will then go into winding up triggering section 75 debts on the Company and Newco in accordance with the apportionment which I have just mentioned.

d. The Trustees will first demand payment of the debt from the Company and this will be paid, that is the £1. As a result, the Company will cease to be an employer as defined for the purposes of the Entry Rules.

e. The trustees will then demand payment of Newco's debt. Newco will be unable to pay or suffer a qualifying insolvency event, thereby triggering a PPF assessment period for statutory purposes.

15. In order to understand these arrangements and to address the arguments presented by Mr Newman and Mr Simmonds QC, it is necessary to consider three sets of provisions. These are:

a. The provisions concerning statutory debts on scheme windups are on certain other occasions which are found in the Pensions Act 1995 as amended by the Pensions Act 2004 and the Occupational Pension Scheme Employer Debt Regulations 2005 (Employer Debt Regulations).

b. The provisions concerning the PPF: the provisions which are of relevance to the issue before me are found in sections 126, 127, 128, 132, 134, 137 and 138 of the Pensions Act, the Entry Rules and the Pension Protection Fund (Multi-employer Schemes) (Modifications) Regulations 2005 (Multi-employer Regulations).

c. The provisions concerning the Pensions Regulator: the Pensions Regulator is also a statutory corporation established under Part 1 of the Pensions Act 2004. The provisions which are relevant to the issue before me are found principally in sections 38 and 43 of that Act.

I take these provisions in turn.

16. The Statutory Debt Provisions: Section 75 of the Pensions Act, as amended, provides so far as relevant, as follows:

"(2) If-


(a) at any time which falls-


(i) when a scheme is being wound up, but


(ii) before any relevant event in relation to the employer which occurs while the Scheme is being wound up,

the value of the assets of the Scheme is less than the amount at that time of the liabilities of the Scheme, and


(b) the Trustees or managers of the Scheme designate that time for the purposes of this subsection (before the occurrence of an event within paragraph (a)(ii)),

an amount equal to the difference shall be treated as a debt due from the employer to the Trustees or managers of the Scheme.

(This is subject to subsection (3).)


(5) For the purposes of subsections (2) and (4) , the liabilities and assets to be taken into account, and their amount or value, must be determined, calculated and verified by a prescribed person and in the prescribed manner.


(10) Regulations may modify this section as it applies in prescribed circumstances."

17. The provisions of section 75 are supplemented and modified by the Employer Debt Regulations, and so far as material, regulation 5(1) provides that:

"The liabilities and assets of a scheme which are to be taken into account for the purposes of section 75(2) and (4) of the 1995 Act and their amount or value must be determined, calculated and verified by the actuary as at the applicable time;

(a) In the case of liabilities in respect of pensions or other benefits, on the assumption that the liabilities will be discharged by the purchase of annuities of the kind described in section 74(3)(c) of the 1995 Act (discharge of liabilities: annuity purchase)."

18. Regulation 5(5) states that:

"The value of the assets and the amount of the liabilities of a scheme which are to be taken into account for the purposes of section 75(2) and (4) of the 1995 Act must be certified by the actuary in the form set out in Schedule 1 to these Regulations, but if the Scheme is being wound up on the date as at which the valuation is made, the actuary must modify the note at the end of the certificate by omitting the words from "if the Scheme" onwards."

19. Regulation 6 deals with multi-employer schemes defined by regulation 2(1) as a scheme in relation to which there is more than one employer:

"(1) In its application to a multi-employer scheme, section 75 of the 1995 Act has effect in relation to each employer as if

(a) the reference in section 75(2)(a) to a time which falls before any relevant event in relation to the employer which occurs while the Scheme is being wound up were a reference to a time which falls before relevant events have occurred in relation to all the employers;


(b) the reference in section 75(2) to an amount equal to the difference being treated as a debt due from the employer were a reference to an amount equal to that employer's share of the difference being treated as a debt due from that employer;


(c) the references in section 75(3)(a)(i) and (b) to no relevant event of the kind there mentioned occurring in relation to the employer were references to no event of that kind occurring in relation to all the employers;


(d) the reference in section 75(4)(a) to a relevant event ("the current event") occurring in relation to the employer were a reference to a relevant event or an employment-cessation event occurring only in relation to that employer;


(e) the reference in section 75(4) to an amount equal to the difference being treated as a debt due from the employer were:


(i) in a case where the difference is ascertained immediately before a relevant event occurs in relation to the employer, a reference to an amount equal to the employer's share of the difference being treated as a debt due from the employer; and


(ii) in a case where the difference is ascertained immediately before an employment cessation event occurs in relation to the employer, a reference to an amount equal to the sum of the cessation expenses attributable to the employer and the employer's share of the difference being treated as a debt due from the employer; and


(f) section 75(4)(d) and (e) were omitted.


(2) For the purposes of paragraph (1), an employer's share of the difference is:


(a) such proportion of the total difference as, in the opinion of the actuary after consultation with the Trustees or managers, the amount of the Scheme's liabilities attributable to employment with that employer bears to the total amount of the Scheme's liabilities attributable to employment with the employers; or


(b) if the Scheme provides for the total amount of that debt to be otherwise apportioned amongst the employers, the amount due from that employer under that provision."

20. The wording of sub-regulation (2) is slightly curious because it refers to the apportionment of the debt or "that debt" as the wording appears in paragraph (b) whereas what is in fact being apportioned is the amount of the difference between assets and liabilities. The explanation for this is perhaps that the wording was lifted from an earlier set of regulations where the provision, as drafted, made perfectly good sense. Its sense, however, is absolutely clear in the context of the regulations and it is in fact referring to that difference.
21. Regulation 6(2) is supplemented by regulation 16(2) which states that:

"In the case of a trust scheme (whether or not a money purchase scheme) which apart from this regulation could not be modified for the purpose of making provision for the total amount of a debt due under section 75(2) or (4) of the 1995 Act to be apportioned amongst the employers in different proportions from those which would otherwise apply by virtue of regulation 6(2)(a) or, as the case may be, regulation 10(1A) (as it has effect by virtue of regulation 12), for the purposes of section 68(2)(e), such a modification of the Scheme is a modification for a prescribed purpose."

22. Before leaving that set of regulations, I should also mention regulation 7 and Schedule 1A. Regulation 7 is headed "Multi-employer schemes employment cessation events and withdrawal arrangements" and by Regulation 7(1) it is provided that this regulation applies where:

"(a) section 75 applies with the modifications referred to in regulation 6 and;


(b) the amount of the liabilities of a scheme immediately before an employment cessation event is being determined in order to determine whether a debt is to be treated as due from the employer under section 75(4) of the 1995 Act."

23. Regulation 7(7) provides that Schedule 1A of these regulations applies for the purposes of making further provision in cases where the regulation applies. In that schedule and regulation 7(1)(a) and 7(b), the "cessation employer" has the same meaning as in this regulation. Schedule 1A, broadly speaking, contains provisions defining withdrawal arrangements which allow an employer ceding from a scheme to pay a smaller amount of debt than would otherwise be due provided that certain guarantee arrangements are put in place. Curiously, at the end, paragraph 3 of the regulation it is provided that:

(1) Nothing in this schedule prevents the authority (the Pensions Regulator) from approving as a withdrawal arrangement an agreement that will take effect only if an appointment cessation event occurs in relation to an employer;


(2) And in the case of such approval, references in paragraphs 1 and 2 to that event and debt must be read accordingly;


(3) But subject to that reference in these regulations to an approved withdrawal arrangement only include references to an arrangement approved under this paragraph if that agreement has taken effect."

I will return to that provision later.

24. There are two authorities dealing with the meaning of "debt" which touch on these provisions which I should refer to. The first is the decision of Mr Charles Aldous QC sitting as a judge of this Division in Bradstock Group Pension Scheme Trustees Ltd v Bradstock Group plc and Others [2002] ICR 1427. The claimant was the trustee of a final salary occupational pension scheme. I take from the head note that the first and second defendants were the employers and the third defendant was a deferred member. The scheme was in substantial deficit and the Trustees served a schedule on the employer setting out the necessary payments to bring the Scheme up to 90 per cent of the minimum funding requirement by April 2003 in accordance with section 60 of the 1995 Act.
25. Since the employers had no realistic prospect of being able to make the requisite payments, the Trustees negotiated a compromise sought by the employers under which the Scheme was to be wound up and, simultaneously, the employer's unsecured non-preferential debt arising under section 75 of the Act was to be compromised by an immediate cash payment plus deferred consideration secured and guaranteed. The scheme would receive significantly more than it would recover in a liquidation but still considerably less than the full amount of the minimum funding requirement. The trustees applied for directions as to whether, in the exercise of the discretion conferred upon under section 15 of the trustee Act 1925, it was possible as a matter of law to compromise a statutory debt arising under section 75.
26. It is unfortunately not clear from the report precisely what the judge approved, in particular whether the compromise would be made only after the commencement of the winding up and, if so, whether it would be before or after the applicable time had been determined and if, after such determination, whether it would be before or after the amount of the debt had been determined. One sees in paragraph 5 of the judgment simply this:

"Under the proposed compromise, which was subject to court approval, the Scheme is to be wound up following notice by the employers to discontinue contributions and simultaneously the section 75 debt is to be compromised by an immediate cash payment plus deferred consideration, suitably secured and guaranteed."

27. Given that it was to be simultaneous, it must be doubtful whether there would have been any quantification of the debt in accordance with the formal statutory procedure by that time, although in the preceding period, the actuary could have lined everything up to sign his certificate. In paragraph 14, the judge deals with the issue of contracting out. He says:

"It was rightly accepted that it was not possible to contract out of the Trustees' and employer's obligations to comply with the MFR regulations nor in advance to contract out of the provisions of section 75. If it were permissible, employers would be able to insert appropriate exclusionary provisions in the Scheme document which would defeat the whole purpose of the legislation. Many of the provisions are mandatory. Statutory obligations are imposed on trustees to ensure compliance. Underlying the provisions is the need not only to protect members and pensioners but to maintain public confidence in occupational pension schemes generally.


Whilst the Scheme is ongoing trustees cannot waive the need for compliance nor negotiate a more lenient schedule of contributions than the regulations prescribe; nor equally can they, in my judgment, contract out of the effect of section 75 in advance of the section coming into play. However, there is a clear distinction between this and trustees compromising or settling a debt which has arisen under section 75 in the best way they reasonably can for the benefit of their scheme members. Allowing trustees to compromise section 75 liabilities does not offend the mischief of the Act."

28. He seems, therefore, to draw a distinction between contracting out of the section before it comes into play and compromising or settling a debt which has arisen under section 75. There is no indication that he considered whether there might be a difference between the section coming into play, that is to say in a single employer scheme where the Scheme is in winding up, or perhaps where an applicable time had been appointed by the trustees, on the one hand, and the debt having been quantified so as to become enforceable on the other. In this context, it is worth noting what the judge said at the end of paragraph 15 when dealing with the suggestion that it might be possible to have more than one actuarial certification at different times within a winding up. He says this:

"It is unnecessary for me to decide this as the answer here lies in the terms of Section 15 Trustee Act, which permits trustees to compromise both accrued and prospective liabilities, at least where one of those liabilities has arisen or is about to arise in the circumstances set out above."

29. Now that might be read as saying that a compromise could be reached under section 15 which did not amount to contracting out of section 75 even before the section had come into play. However, that is not clear. Mr Simmonds, for his part, submits that a person reading the judgment in 2004 (and he has in mind the draftsman of the Entry Regulations here) would properly have taken it as a decision that a compromise was possible only if a debt had been quantified attaching importance to the words "settling a debt which has arisen" (my emphasis).
30. I doubt that the judgment can be read that way, but I do agree that the judge perceived the distinction between the position after a scheme has gone into winding up at which point the section is engaged and the position prior to that time. That is enough for Mr Simmonds' purposes, as will appear later. Whether the judge would have accepted that there would be any contracting out of section 75 if the compromise was to be made in the context of an immediately impending winding up, one does not know since it does not appear to have arisen for his decision.
31. The other authority is the decision of Sir Andrew Morritt (then Vice-Chancellor) in Phoenix Venture Holdings Ltd v Independent Trustees Services [2005] PLR 379. In that case, the Scheme was in substantial deficit. If it had gone into winding up, the modest part of a very large deficit attributable to the claimant company was about £200,000. An amendment was made pursuant to an amending power in the scheme, alternatively under section 68(2) of the Pensions Act 1995, to give the trustees power to apportion the deficit among all the employers in such shares as they thought fit. The operative part of the amendment was in the following terms:

"'If a debt arises under section 75A of the 1995 Act when the Scheme commences winding-up, the debt shall be apportioned amongst the Employers in such shares as the trustee in its absolute discretion determines."

This reflects the actual wording of regulation 6(2) of the Employer Debt Regulations rather than its intent, which is to allow apportionment of the difference (as I have explained) rather than of the debt which has arisen.

32. Following a demand for £400 million, which the Company challenged as ineffective, the Trustees purported to exercise their power of apportionment by allocating £25 million of an estimated total debt of over £400 million to the Company. The operative part of that resolution was this: "In the exercise of the power conferred by rule 35.1 of the definitive rules of the Scheme as amended and any relevant power, the Company apportions £25 million as the share of difference between assets and liabilities in the Scheme as at 28 April 2005 attributable to PBH [that is the Company]."
33. There one sees wording which does reflect what I think is the intent and effect of regulation 6(2)(b) which refers to differences rather than debts. At paragraphs 25 and 26 of the Vice-Chancellor's judgment, he says this:

"The definition of 'insolvency event' in section 121 of the Pensions Act 2004 is contained in section 121(3) and includes entry into administration, passing a resolution for winding up and an order to wind up. In the light of the arguments to which I shall refer later it is necessary to identify the time when 'the debt from the employer' referred to in section 75(2) first arises.


Counsel for the trustee submitted that the debt arose on the designation of the time provided for in section 75(2). Counsel for the Company contended that it was the first moment when the deficit had been ascertained by the actuary in accordance with section 75(5). I prefer the latter submission. There cannot be a debt until a sum certain has been ascertained. The designation of the time is so that the actuary may know as of what date his calculations should be made. But until those calculations have been made in the prescribed manner the difference between the value of the assets and the amount of the liabilities cannot be ascertained and an amount equal to that difference remains uncertain."

34. For the purposes of section 75(2), the Vice-Chancellor decided that a debt arises only once the calculations have been carried out. However, although the debt may not be due until the calculations are completed, the difference between assets and liabilities is to be ascertained as of the time designated by the Trustees, and although one may not know at that time what that difference is, a subsequent calculation will reveal what it in fact was.
35. Following from that distinction between a valuation difference of the designated time on the one hand and the debt equal to that difference which arises only following its ascertainment on the other, what regulation 6(2)(a) provides is not for the ascertainment of the employer's share of debt but for the employer's share of the difference, and it provides a formula for doing so.
36. Similarly, although regulation 6(2)(b) refers to "debt", it clearly means "difference" and I see no reason why a scheme should not provide a formula which can be applied to the difference as of the designated time. For instance, if there are two employers, the formula could be an equal division of the difference or it could be of a specified amount, for instance, providing for the first £1 or £25 million to be apportioned to one employer and the balance to the other. If trustees are given a discretion about how to ascertain that difference, I do not see why, in principle, they should not be able to determine how to do so prior to the ascertainment of the amount, provided that the enabling power is expressed in appropriate language to achieve that end, although the actual apportionment might not be affected until the valuations were complete.
37. However, the Vice-Chancellor states that a debt does not arise under section 75(2) until the deficit has been ascertained by the actuary under section 75(5). It might therefore follow that, even if one knows that the calculation will reveal a deficit of several million pounds, there is no debt due from any employer and even though one knows that the formula will apply to a portion of only £1 to a particular employee, not even that £1 is a debt due from that employer. All must await the actuary's determination and certificate.
38. The Vice-Chancellor at paragraph 49 of his judgment approached the succeeding issues on the basis that the Scheme conferred on the trusts a power in the following terms:

"If a debt arises under section 75A of the 1995 Act when the Scheme commences winding up, the debt shall be apportioned amongst the employers in such shares as the trustee in its absolute discretion determines."

39. He then turned to the Resolution dated 28 April 2005. By this document, the trustees, in exercise of that power, the trustees purported to apportion "the debt arising under section 75A of the 1995 Act jointly and severally to all the Scheme's participating employers. The Vice-Chancellor said this:

"The phrase 'debt arising under section 75A of the 1995 Act' also appears in the condition attached to the power conferred by the by the words 'if a debt arises under section 75A of the 1995 Act when the Scheme commences winding up'. It seems to have been intended to have the same meaning. In the context of the power, the meaning is to be ascertained from the evident understanding that a debt arose on the commencement of the winding up of the Scheme, but it is not.


The debt can only commence after the commencement of the winding up of the Scheme when the actuary has made the prescribed calculations and the debt, as it emerges and is certified by him in accordance with regulation 5 in schedule 1 of the Employer Debt Regulations. Accordingly, it appears to me that it is necessary to substitute the word "after" for the word "when" so it read, 'The debt arises when the calculations have been made and an amount has been certified'.


It follows that the condition precedent to the exercise for a power to apportion is not satisfied before the completion of the actuary's calculations on and a certification by him as prescribed. Nor is there any subject matter on which the resolution can operate."

40. His decision seems to turn very much on the construction of this particular rule treating "debt arises" as meaning precisely that rather than referring to the difference between assets and liabilities. One can see that from paragraph 59 of his judgment where he addresses the share of the difference which is to be treated as the debt due from the employer and says that it does not seem to him that the change in wording between the resolutions lead to any change in outcome. The enabling power remained restricted, he considered, so the power to apportion could not be exercised until the valuations were complete. The power was not read as enabling the Trustees to specify in advance how an apportionment should be carried out rather than acted purporting to carry out the PPF provisions.

PPF Provisions

41. As I have said, the Board of the PPF is a statutory corporation. Its main function is to provide compensation for members of eligible defined benefit pension schemes where there is a qualifying insolvency event in relation to the Scheme employer and there are insufficient assets in this scheme to cover the PPF level of compensation.
42. Eligibility of schemes for entry into the PPF is governed by section 126 of the 2004 Act. Subsection 1 provides that:

"Subject to the following provisions of this section, in this Part references to an "eligible scheme" are to an occupational pension scheme which


(a) is not a money purchase scheme, and


(b) is not a prescribed scheme or a scheme of a prescribed description."

43. Also of relevance are the Entry Regulations and in particular regulation 2. Regulation 2(1) contains a number of specific exclusions, none of which is relevant to the present case. The critical provision for the present purpose is Regulation 2(2) which reads as follows:

"Except as otherwise provided in paragraphs (3) and (4) of this regulation, an occupational pension scheme which would be an eligible scheme but for this paragraph is not an eligible scheme where at any time the Trustees or managers of the Scheme enter into a legally enforceable agreement, the effect of which is to reduce the amount of any debt due to the Scheme under section 75 of the 1995 Act which may be recovered by or on behalf of those trustees or the managers."

44. The exceptions from Regulation 2(2) in regulations 2(3) and (4) are as follows:


"(3) Paragraph (2) shall not apply where-


(a) before the beginning of an assessment period-


(i) the Trustees or managers of the Scheme enter into a legally enforceable agreement the effect of which is to reduce the amount of the debt due to the Scheme under section 75 of the 1995 Act which may be recovered by, or on behalf of, those trustees or managers;


(ii) the value of the Scheme's assets would be sufficient to secure benefits for or in respect of members of the Scheme which correspond to the amount of compensation which would be payable in relation to the Scheme in accordance with the pension compensation provisions if the Board were to assume responsibility for the Scheme in accordance with Chapter 3 of Part 2 of the Act (pension protection);


(iii) an individual appointed to act as the actuary in relation to the Scheme ('the actuary') has provided the Board with a written estimate of the current value of the assets and the protected liabilities of the Scheme together with a statement about the effect which the agreement would have on the value of the Scheme's assets as recorded in that estimate; and


(iv) the Board has determined to validate the estimate and statement provided;


(b) before the beginning of an assessment period, the Trustees or managers of the Scheme enter into a legally enforceable agreement, as part of an arrangement under section 425 of the Companies Act 1985 (power of company to compromise with creditors or members), the effect of which is to reduce the amount of the debt due to the Scheme under section 75 of the 1995 Act which may be recovered by, or on behalf of, those trustees or managers; or


(c) after the beginning of an assessment period, or a further assessment period, the Board has entered into a legally enforceable agreement on behalf of the Trustees or managers of the Scheme the effect of which is to reduce the amount of the debt due to the Scheme under section 75 of the 1995 Act which may be recovered by, or on behalf of, those trustees or managers.


(4) Paragraph (2) above shall also not apply in relation to an eligible scheme where, before the beginning of an assessment period in relation to the Scheme, a prescribed arrangement is in place pursuant to regulations made under section 75A of the 1995 Act (debt due from the employer in the case of multi-employer schemes)."

45. Under section 127 of the Pensions Act 2004, the PPF must assume responsibility for an eligible scheme in certain circumstances which are set out in subsection (2) by reference to subsection (3) which defines a qualifying insolvency event. Essentially, the Board has to take responsibility for the Scheme if a qualifying insolvency event occurs in relation to the employer, or in a multi-employer scheme, each of the employers (but I am not going to go to those provisions) and the scheme's assets are insufficient to fund payment of PPF level benefits. Section 318(1) contains a definition of "employer" which,

"In relation to an occupational pension scheme, means the employer of persons in the description of employment to which the Scheme in question relates."

46. That is supplemented by another provision in section 318(4) which says:

"Regulations may, in relation to occupational pension schemes, extend for the purposes of Parts 1, 2 and 4 to 7 and this Part the meaning of 'employer' to include


(a) persons who have been the employer in relation to the Scheme;


(b) such other persons as may be prescribed."

47. A qualifying insolvency event is, generally speaking, the first insolvency event to incur in relation to the employer since 5 April 2005. In this connection it is relevant to note that former employers may still count as scheme employers in certain circumstances. By virtue of regulation 1(3) of the Pension Protection Fund (Multi-Employer Schemes) (Modification) Regulations 2005,, former employers are included unless one of four conditions is satisfied, the first of which is that a debt under section 75 of the Pensions Act 1995 became due from that employer and the full amount of that debt has been paid before the assessment date.
48. Accordingly, in the present case, the Pension Proposal, if it is effective, will result in the Company ceasing to be an employer for the purposes of the Scheme before the beginning of an assessment period which will occur only on an insolvency event in relation to Newco. Section 132 provides for an assessment period to begin on the occurrence of a qualifying insolvency event in relation to the employer in an eligible scheme.
49. During the assessment period, the PPF must as soon as reasonably practical obtain an actuarial valuation of the Scheme to determine whether or not its assets are sufficient to meet PPF level benefits pursuant to section 143. Payment of benefits to scheme members is limited to the PPF level benefits. Such payments are essentially compensation provided by the PPF pursuant to section 138. Section 137(2) provides that:

"During the assessment period, the rights and powers of the Trustees or managers of the Scheme in relation to any debt (including any contingent debt) due to them by the employer, whether by virtue of section 75 of the Pensions Act 1995 (c 26) (deficiencies in the Scheme assets) or otherwise, are exercisable by the Board to the exclusion of the Trustees or managers."

50. Where the PPF's obligation to assume responsibility for the scheme is confirmed by the valuation, the Board must give the Trustees a transfer notice under section 160, the effect of which is, broadly speaking, to vest the assets and liabilities of the Scheme and the PPF and the PPF proceeds to pay pension compensation to members under section 162 and schedule 7.

The Pensions Regulator

51. The Pensions Regulator is, as I have said, a statutory corporation. The 2004 Act confers wide-ranging powers on the Regulator to determine the administration of occupational pension schemes so as to protect scheme members and to prevent exploitation of the PPF. Relevant to the present case are two groups of sections under the heading "Contribution Notices Where Avoidance of Employer Debt" at sections 38 to 42 and "Financial Support Directions" at sections 43 to 67. I set out some of those provisions:

"38. Contribution notices where avoidance of employer debt

(2) The Regulator may issue a notice to a person stating that the person is under a liability to pay the sum specified in the notice (a 'contribution notice')

(a) to the Trustees or managers of the Scheme, or

(b) where the Board of the Pension Protection Fund has assumed responsibility for the Scheme in accordance with chapter 3 of part 2 (pension protection), to the Board.

(3) The Regulator may issue a contribution notice to a person only if

(a) the Regulator is of the opinion that the person was a party to an act or a deliberate failure to act which falls within subsection (5),

(b) the person was at any time in the relevant period

(i) the employer in relation to the Scheme, or

(ii) a person connected with, or an associate of, the employer,

(c) the Regulator is of the opinion that the person, in being a party to the act or failure, was not acting in accordance with his functions as an insolvency practitioner in relation to another person, and

(d) the Regulator is of the opinion that it is reasonable to impose liability on the person to pay the sum specified in the notice.

(5) An act or a failure to act falls within this subsection if

(a) the Regulator is of the opinion that the main purpose or one of the main purposes of the act or failure was

(i) to prevent the recovery of the whole or any part of a debt which was, or might become, due from the employer in relation to the Scheme under section 75 of the Pensions Act 1995 (c 26) (deficiencies in the Scheme assets), or

(ii) otherwise than in good faith, to prevent such a debt becoming due, to compromise or otherwise settle such a debt, or to reduce the amount of such a debt which would otherwise become due,

(b) it is an act which occurred, or a failure to act which first occurred-

(i) on or after 27 April 2004, and

(ii) before any assumption of responsibility for the Scheme by the Board in accordance with chapter 3 of part 2, and

(c) it is either

(i) an act which occurred during the period of six years ending with the determination by the Regulator to exercise the power to issue the contribution notice in question, or

(ii) a failure which first occurred during, or continued for the whole or part of, that period.

(7) The Regulator, when deciding for the purposes of subsection (3)(d) whether it is reasonable to impose liability on a particular person to pay the sum specified in the notice, must have regard to such matters as the Regulator considers relevant including, where relevant, the following matters

(c) any connection or involvement which the person has or has had with the Scheme

(8) For the purposes of this section references to a debt due under section 75 of the Pensions Act 1995 (c 26) include a contingent debt under that section.

39. The sum specified in a section 38 contribution notice

(2) Subject to subsection (3), the shortfall sum in relation to a scheme is

(a) in a case where, at the relevant time, a debt was due from the employer to the Trustees or managers of the Scheme under section 75 of the Pensions Act 1995 (c 26) ("the 1995 Act") (deficiencies in the Scheme assets), the amount which the Regulator estimates to be the amount of that debt at that time, and

(b) in a case where, at the relevant time, no such debt was due, the amount which the Regulator estimates to be the amount of the debt under section 75 of the 1995 Act which would become due if

(i) subsection (2) of that section applied, and

(ii) the time designated by the Trustees or managers of the Scheme for the purposes of that subsection were the relevant time.

(4) For the purposes of this section "the relevant time" means-

(a) in the case of an act falling within subsection (5) of section 38, the time of the act, or

(b) in the case of a failure to act falling within that subsection

(i) the time when the failure occurred, or

(ii) where the failure continued for a period of time, the time which the Regulator determines and which falls within that period.

(5) For the purposes of this section

(a) references to a debt due under section 75 of the 1995 Act include a contingent debt under that section, and

(b) references to the amount of such a debt include the amount of such a contingent debt.

51. Sections 43 to 50: interpretation

(2) For the purposes of those sections

(a) references to a debt due under section 75 of the Pensions Act 1995 (c 26) include a contingent debt under that section."

Discussion

52. The problem facing the parties is the true interpretation of Regulation 2(2). Mr Newman submits that it should have a broad construction, including not only the case of the legally enforceable agreement made by trustees at a time when a debt on the employer has actually fallen due for payment after quantification pursuant to the statutory procedures, but should also cover cases where the effect of such an agreement is to reduce the amount of any relevant debt which would otherwise have come due after the agreement.
53. Mr Simmonds submits that it should have a more narrow construction restricted to cases where a debt has actually arisen. His primary submission is that the agreement must be one which reduces the amount of the debt which has actually arisen at the time of the agreement. However, it would be perfectly satisfactory for his purpose if the regulation was slightly less narrowly construed requiring only events that had happened which triggered the procedure leading to the ascertainment of the debt.
54. Thus, in the case of the single-employer scheme, it would at least need to be in winding up, but possibly the Trustees would also have to designate the date for the ascertainment of the debt, thus bringing the case within section 75(2) or an insolvency event would have had to occur in relation to the employer bringing the case within section 75(4).
55. In the case of a multi-employer scheme where section 75A and the Employer Debt Regulations apply, the trigger events for the purposes of section 75(4) in relation to any given employer could be an insolvency event in relation to that employer or it ceasing to be an employer, but on the narrow construction, a debt would not arise until the employer's share of the deficit was ascertained.
56. It is common ground that the two deeds which form part of the Pension Proposal amount to a legally enforceable agreement for the purposes of Regulation 2(2). It occurs to me I have not mentioned what those deeds are. They are two documents which will effect the participation of Newco in the Scheme and permit the subsequent events which the Pension Proposal envisages. I think the common ground must be right, since the Trustees' agreement is necessary before Newco can participate in the Scheme and their agreement is also necessary in order to introduce the amendment to the Scheme to enable the apportionment of the deficiency in the manner contemplated. This seems to amount to a legally enforceable agreement entered into by the Trustees.
57. Both Mr Newman and Mr Simmonds submit that their construction is the more purposive. That, of course, depends on how one states the purpose. Mr Newman starts with Regulation 2(2) itself. He says that regulation 2 and in particular sub regulation (2) must have a purpose, a purpose which he identifies as being to protect the PPF against compromises and other agreements where there is a possibility that the Trustees might enter, whether deliberately, negligently or simply through weak bargaining, into arrangements which increase the burden on the PPF. Both he and Mr Simmonds consider that the principle targets of the provisions were Bradstock compromises (although they do not agree precisely what that decision actually did decide) a decision which is taken to be known by the draftsman of the Entry Rules. As to that, Mr Newman submits that Bradstock can properly be seen as going wider than the case where a debt has actually been quantified. It is true, as Mr Simmonds emphasises, that the judge stated clearly that it is not possible to contract out of section 75 (a proposition with which, in this judgment, I do not need to agree or disagree) but the contrast which the judge drew, as Mr Newman points out, is between (a) contracting out of the effect of section 75 before it has come into play and, (b) compromising a debt which has arisen under section 75 in the best way in which the Trustees reasonably can for the benefit of their scheme members.
58. As I have said, it is not, unfortunately, clear from the report whether the judge envisaged the compromise which he was approving as being one to be entered into before or after the debt had been quantified. Nor does it seem he had in mind the distinction on which attention has focused since Phoenix between the occasion giving rise to the debt and the actual quantification of it so as to make it a debt due. However, I find it difficult to see what difference in principle it makes to the contracting out argument whether or not the debt has been quantified once the event pursuant to which it arises has occurred. The power to compromise under section 15 of the trustee Act 1925 would clearly be wide enough for the trustee to effect such a compromise. For instance, the Trustees of a single-employer scheme may know possibly quite accurately the amount of the debt without it having been formally certified. If the Scheme is in winding up and the Trustees have designated a time for the purposes of section 75(2) or the employer has suffered an insolvency event, a compromise would not be any more an attempt to contract out of section 75 than an agreement made after quantification.
59. However, it is a different matter whether such a compromise can be effected before the time when all that is left to do is for the actuary to quantify the debt. This could be an important question. Let me give an example. Suppose that the employer is on the brink of insolvency. If the employer goes into liquidation, the Scheme will go into winding up and the section 75 debt will be triggered under section 75(4). Suppose that the employer's bankers are willing to support the employer and to allow it to make a payment into the Scheme at amount A, being an amount greater than would be recovered in the liquidation if, but only if, the Trustees (a) agree to put the Scheme into winding up without a liquidation of the employer taking place and, (b) to accept in satisfaction of the section 75 amount the debt amount A being an amount less than the anticipated section 75 debt.
60. It is not clear whether that would be permitted or whether it would amount to contracting out of section 75. It is an issue which I do not propose to attempt to answer here, but whatever the correct answer, it is clear that Bradstock does not provide it and that the draftsman of the Entry Rules cannot, as a result of Bradstock at least, have taken the view that it would be a permissible compromise.
61. Mr Newman points out that if Regulation 2(2) is to bite on anything, it must bite on the Bradstock compromises. He says that, if the narrow construction as advanced by Mr Simmonds is correct, it will be the simplest thing in the world to avoid the exclusionary effect of it. Thus, if one takes the narrowest view of what Bradstock decided and restricts Regulation 2(2) to being directed at a compromise of a debt which has been quantified, the Trustees would be able to enter into a compromise before the debt had been quantified and thus fall outside the regulation. Or if a slightly broader view is taken of the decision in Bradstock, they could enter into such a compromise before designating a time so that there was more left to do than simply the completion of the actuarial exercise.
62. Further, in a case such as the present where the legally enforceable agreement is not a compromise requiring the exercise by the Trustees of their powers under section 15 of the Trustee Act 1925 or similar express powers in a relevant scheme, there will no question of contracting out of section 75 and the agreement can be made even before the first of the conditions giving rise to such a debt is fulfilled. Thus, if the agreement is made before the Scheme goes into winding up and before there is a relevant insolvency event or an employment cessation event, Regulation 2(2) will be sidestepped and the protection for the PPF, which Mr Newman suggests was obviously intended, will be lost.
63. Mr Newman also points to regulation 7 and schedule 1A of the Employer Debt Regulations. Those regulations envisage an employer withdrawing from a multi-employer scheme but not having to pay the full amount of the section 75 debt. That debt would normally be ascertained on a full buyout basis. Withdrawal arrangements envisage the employer paying a lesser amount broadly ascertained on an MFR basis with the balance being subject to a guarantee which the Pensions Regulator is prepared to sanction.
64. There is a curious difficulty with the drafting which I need to explain. Regulation 7(1) provides for regulation 7 to apply in the circumstances set out in paragraphs (a) and (b) which I have set out already. Paragraph (b) appears to envisage a situation where an employment cessation event has already occurred and, as a result, a "debt calculated on the basis of assets and liabilities valued in accordance with regulation 5 is treated and due under section 75(4)". According to Phoenix, the debt due under section 75(2) arises only on completion of the calculation. The same reasoning as led to that decision applies equally in relation to a debt due under section 75A.
65. Withdrawal arrangements are dealt with in schedule 1A. They are introduced by regulation 7(7) which, again, I have already set out. That Schedule applies where, and as I see it only where, the regulation applies by virtue of regulation 7(1) and thus only where paragraph (b) is fulfilled. So far as I am aware, regulation 7 and schedule 1A are the only provisions which expressly provide for the sanction by the Pensions Regulator of arrangements of this nature. Regulation 7(1) and schedule 1A are of course contained in the same set of regulations. They have to be construed together.
66. Paragraph 3(1) of schedule 1A provides that nothing in the schedule prevents the Pensions Regulator from approving as a withdrawal arrangement an agreement that will take effect only on an employment cessation event in relation to an employer. It seems therefore to envisage the possibility of a withdrawal arrangement being made before the circumstances have arisen, following which a debt has to be calculated. Where approval is given to a withdrawal arrangement, paragraph 3(2) provides that references in paragraphs 1 and 2 to that event and to that debt must be read accordingly.
67. Whatever the meaning of those provisions, what must be intended, I think, is that an arrangement made in advance of the employment cessation event is nonetheless to be treated as a withdrawal arrangement, although it is not easy to see precisely how those provisions operate. More importantly, it is entirely unclear how regulation 7(1) and schedule 1A in fact interrelate.
68. Neither Mr Newman nor Mr Simmonds was able to give an entirely satisfactory or, indeed, any answer and I cannot see one either. I fear that it is a case of two related provisions which simply did not hang together properly. The squaring of the circle must be left for a different occasion, but perhaps one solution is to say that the scope of the regulation is in fact extended by paragraph 3 so as to permit the making and approval of a withdrawal arrangement before an anticipated employment cessation event but conditional upon it actually occurring. Whatever the meaning and effect of these provisions, I do not gain any assistance from them either way in resolving the correct interpretation of Regulation 2(2) of the Entry Rules but I have, nonetheless, felt it necessary to address them at the length I have in the light of the arguments that were addressed.
69. The provisions of regulations 2(3) and 2(4) of the Entry Rules provides certain exceptions from the exclusion contained in paragraph 2(2). Mr Newman submits that this shows that Regulation 2(2) is to be given a broad interpretation because, in the light of its width, it was then perceived that certain exceptions were necessary. There are a number of points to make in relation to those exceptions. The first point is that it is to be noted that paragraph (a) excludes cases where (1) an agreement has been made before the beginning of the assessment period and, (2) the funding is sufficient to meet the PPF level and is subject to an actuarial estimate and statement and, (3) the Board has determined to validate the estimate and statement. Further paragraph (a)(i) uses the same phrase as Regulation 2(2), that is "the trustees enter into a legally binding agreement, the effect of which is to reduce the amount of the debt due to the Scheme under section 75."
70. That phrase must, I consider, be construed in the same way in each provision. It follows that, if the narrow construction is correct, the exception in paragraph (a) applies only to debts which have arisen and fallen due for payment or at least where a triggering event has occurred and all that remains is quantification. Accordingly, the legally enforceable agreement would have to be made before any qualifying event occurs since, at that stage, an assessment period would have begun.
71. This does not mean that paragraph (a) is without content. For instance, the Scheme might go into winding up giving rise to a section 75 debt which is duly quantified. The trustees might then effect a Bradstock compromise complying with paragraphs (a)(ii) to (iv). However, the content of the exception in paragraph (a) is very limited and, thus, the power of the Board to approve compromises is limited. It is not easy to see why the Board should be limited to approving a compromise only once a debt has actually become due, especially as the main plank in the argument (to which I will come) in favour of the narrow construction is that the PPF is protected by the control which the Pensions Regulator has under the moral hazard provisions.
72. The second point on regulation 2(3) arises under paragraph (b). There is an exception from the exclusion from eligibility if the trustees enter into a legally enforceable agreement as part of a scheme of arrangement under section 425 of the Companies Act 1985, the effect of which, again, using the same language as Regulation 2(2) is to reduce the amount of the debt due. On the narrow construction, a scheme of arrangement becoming effective before quantification of a section 75 debt, or at least before a trigger event on the slightly less narrow construction, and which compromises the formally unquantified or contingent debt to the trustees will result in the exclusion of the pension scheme from eligibility, even though the court will have sanctioned the Scheme of arrangement.
73. The third point on regulation 2(3) arises under paragraph (c). The exception from the exclusion applies after the commencement of an assessment period. In that case, the Trustees' powers pass to the Board which is therefore able to make such compromise as the Trustees themselves could have made. Where the Board makes such an agreement which falls within paragraph (c), the Scheme does not cease to be eligible. However, the exception applies, using the same words as before, where the effect is to reduce the amount of the debt due to the Scheme, which on the narrower construction requires quantification of the debt or at least the occurrence of the triggering event.
74. Again, as with paragraph (a) it is not easy to see why the Board should be limited to approval of the compromise only once the debt has actually become due. I pass quickly over this odd feature of paragraph (c), namely that it excludes agreements made by the Board even though paragraph 2(1) is expressed only to exclude agreements made by trustees or managers; one can readily accept that the draftsman included this out of caution, being concerned that an agreement made by the Board on behalf of the Trustees might fall within paragraph 2(1).
75. Further, it is particularly odd that the sanction of the Pensions Regulator is not, on the narrow construction, enough to bring an agreement within paragraph (a) or (c) unless the debt is quantified or triggered, whereas the Pensions Regulator's approval of a previous withdrawal arrangement, whenever made, is by virtue of regulation 2(4) enough.
76. Mr Newman makes the point that in providing these exceptions, the draftsman has addressed the proper scope of the single legislative instrument, one of those exceptions involving the Pensions Regulator himself. There is, accordingly, less need, he says, either to be concerned about the wide-ranging applicability of Regulation 2(2) or to look to other provisions of the Pensions Act 2004 for protection for the PPF. That is certainly a point which can be made and has some force, but I have pointed out that none of the exceptions is devoid of content, even on a narrow construction. Mr Simmonds says, in any case, that it is a small price to pay for flexibility.
77. Essentially Mr Newman's positive case is that the narrow construction allows the proverbial coach and horses (or as more recently modified, an articulated lorry) to be driven through the protection which Regulation 2(2) must have been intended to provide and he relies on the provisions which I have mentioned and the curious (as he would say) results of applying the narrow construction to them.
78. Mr Simmonds approaches the matter from an entirely different and wider perspective. In the context of that wider perspective, Regulation 2(2) is, he says, to be seen as dealing with the very specific problem arising out of Bradstock compromises. Mr Simmonds' purposive approach identifies four aims and objectives of the relevant legislation, that is to say for present purposes, the provisions of the Pensions Act 2004 concerning the Pensions Regulator and the PPF. They are,

a. Firstly, safeguarding members' benefits. This is achieved principally by the PPF taking responsibility to meet the protective level of benefit by way of compensation, with the PPF receiving the assets of the Scheme which enters into the PPF, the mechanics being found at sections 160 and 161.

b. Secondly, minimising the burden on the PPF and the amount of the levy. This is achieved principally through the moral hazard provisions; the phrase conventionally used to describe the contribution notice and financial support provisions which I have already mentioned in relation to the Pensions Regulator. Indeed, Mr Simmonds says it is actually the principal purpose of those provisions to prevent the shunting-off of liabilities to the PPF. He says that this approach is reflected in section 134 where the Board may, during an assessment period, give directions which are designed to keep the burden on the PPF to a minimum. That would seem to be correct.

c. Thirdly, giving effect to the rescue culture. The relevant provisions are to be read in the context of a culture, which has developed in insolvency law since the mid-1980s, of saving businesses as going concerns rather than allowing them to fail. This is reflected in section 38(7)(e), the Pensions Regulator, in deciding whether or not impose liability under the section, must have regard to a number of factors including those set out in paragraph (e), namely, all the purposes of the act or failure to act (including whether a purpose of the act or failure to act was to prevent or limit loss of employment).

d. Fourthly, recognising the flexibility of the apportionment process under regulation 16(2) and 17(2) of the Employer Debt Regulations. Parliament has clearly recognised that it may be desirable for trustees to have power to apportion employer debts in a manner other than in accordance with the statutory default formula in regulation 6(2)(a) and has even provided the Trustees with an express power to introduce apportionment provisions different from the default whether the Scheme did not already contain such power.

79. In the context of that last point, Mr Simmonds submits that Mr Newman's broad construction makes it impossible ever to introduce an apportionment provision into a subsisting scheme without rendering the Scheme ineligible for entry into the PPF. This is because such an apportionment will, by definition, be different from the previously existing apportionment. Some employers will therefore be liable to pay more and some less. Although the total debt may remain the same before and after the introduction of the different apportionment, Regulation 2(2) is looking at each employer separately. That objection would not arise if the narrow construction (debt quantified) or the slightly less narrow construction (triggering an event for quantification or even simply commencing to scheme windup) were correct. Indeed, if that objection is correct, the same could even apply in some circumstances where a new employer is admitted to the Scheme with the Trustees' consent, thus giving rise to a "legally enforceable agreement" within regulation 2(2) where the effect is to reduce the share of the deficit for which an existing employer would otherwise be liable. It would be a startling result if the admission of a new employer ran the risk of rendering a scheme ineligible to enter the PPF.
80. Mr Simmonds proceeded to test Mr Newman's broad approach against each of his four factors. Of course, if you pick your own criteria, you are in a better position to demolish your opponent's argument than if you use his criteria. Nonetheless, it was a useful exercise because it is important, I consider, to understand Regulation 2(2) in the context of the entire legislation and not to view it in isolation.
81. As Mr Simmonds points out, there is no power for the Board or the Pensions Regulator to waive the requirement of regulation 2. He says that one advantage of the narrow construction is that it limits the occasions of automatic exclusion leaving it open to the Pensions Regulator to sanction arrangements which are to the perceived advantage of everyone. One only needs to look at the present case for an example, where the Pensions Regulator and the Board perceive the Pension Proposal as likely to result in a better recovery for the PPF and where the Company is able to continue as a going concern with the hope of full recovery. In practice, the Pensions Regulator will not sanction the Pension Proposal unless the Board consents and the Trustees themselves will agree only if the Pensions Regulator sanctions it.
82. Mr Simmonds says that Regulation 2(2) is not well thought out and that, even on the narrow construction, it makes little sense, but on the broader construction, it makes no sense at all. There is considerable force in that. Given that certain agreements made with the consent of the Board or the Pensions Regulator (see the exceptions in regulation 2(3) and (4) (already discussed) it is difficult to discern the policy behind Regulation 2(2). Why not, one asks, simply allow any agreement, whenever made, to be excluded from Regulation 2(2) provided that the Pensions Regulator or the Board has sanctioned it? That seems to me to be a valid point, and if it is valid in relation to the narrow construction, it is even more valid in relation to the broader construction which restricts more than the narrow construction the range of agreements which can be allowed to take effect without jeopardising eligibility.
83. In this context, Mr Simmonds says that Regulation 2(2) was inserted to address, in an unthought-out way, Bradstock compromises. As I have already explained, it is not clear precisely what the scope of the compromise in Bradstock was but the decision could not be read as addressing the case whereas the section 75 debt had not even been triggered, for instance, where a single-employer scheme was not even in winding up. Mr Simmonds describes the problem in this way. "It is that such compromise ties the hands of the PPF when it comes to exercise its powers under section 137(2) and there is generally no vetting of the Trustees' decision to compromise at a particular level. The mischief to which Regulation 2(2) was directed does not apply when the Scheme in question is, in any event, sufficiently funded to pay PPF level benefits or when appropriate controls are in place".
84. Now it may be that that is what the draftsman had in mind and all he had in mind. As I have said, he certainly did not have the decision in Phoenix in mind as it had not been decided and it must be doubtful where the distinction drawn in that case between section 75 coming into play and the debt arising under it for the first time would have been appreciated even by professionals involved in this area. That is not to say that the provision must be restricted in its interpretation to the narrow problem which it is now perceived it was directed at. If, in practice, it is possible easily to avoid the provision so that it becomes a dead letter and if a reasonable broader construction of it prevents that result, there is much to be said to giving it the broader construction unless perhaps, to state the obvious, countervailing arguments should prevail.
85. Mr Simmonds says that his construction is more likely to achieve the objective of minimising the burden on the PPF. It allows deals to be done which have the effect of enhancing recoveries for the PPF in circumstances where the narrow construction would lead to corporate's insolvency and less recovery. In other words, better commercial results can be achieved. In nearly all cases, such deals could proceed prior to an assessment period only with the clearance from the Pensions Regulator. Of course, negotiations may not result in a deal, but in such a case, if trustees were to proceed without clearance, there would be a risk of a number of parties being in receipt of a contribution notice.
86. That the Board are envisaged by the legislation of being capable of making commercial agreements and being more than merely a body charged with administrative supervision of the PPF is I think clear from the role given to them during the assessment period, taking over the functions and powers of the trustees, a role which is reflected in regulation 2(3)(c) of the Entry Rules. I reject Mr Newman's submission that, because they had no such role prior to an assessment period, they can therefore have no role at all in relation to a commercial transaction involving the Trustees of the Scheme prior to the assessment period. In particular, it is I think entirely appropriate and within its powers for the Board to liaise with the Pensions Regulator in relation to the manner in which the Pensions Regulator is to exercise its own powers when that exercise may impact on the PPF itself.
87. Further, Mr Simmonds submits that the PPF is adequately protected on the narrow construction. Once an assessment period has begun, the Trustees' powers are vested in the Board and to all practical intents and purposes, no agreement within Regulation 2(2) can be made other than by or with the consent of the Board. Prior to the beginning of an assessment period, an agreement which is concluded other than with the approval of the Board, creates a risk of intervention by the Pensions Regulator in the shape of contribution notices and financial support directions. The Board itself seems to be of the view that that affords adequate protection for the PPF, having indicated as much in its decision not to become involved in these proceedings.
88. Mr Newman submits that the protection is not in fact appropriate or adequate. He points out a number of instances where an agreement could be made which falls outside the scope of the moral hazard provisions but which has precisely the result which Regulation 2(2) is aimed at preventing; and he submits that the Board, being a separate body from the Pensions Regulator, cannot simply rely on the Pensions Regulator to protect the PPF. The Board and the PPF have different functions and he says that it would be strange if the Board had to look to a third party to provide the protection for the funds which it is supposed to be responsible for. As to agreements falling outside the scope of protection afforded by the PPF through the exercise of the Pensions Regulator's powers, Mr Newman identifies the following.
89. By way of example, the contribution notice procedure is only applicable where "the main purpose or one of the main purposes" of the impugned conduct falls within section 38(5) of the Pensions Act 2004. Accordingly, there may be circumstances where the PPF would wish to avoid being saddled with a liability for a scheme where an agreement has been reached which has the effect of reducing the employer's liability for a section 75 debt not yet due but the Pensions Regulator is not persuaded that the main purpose of one of the main purposes of that agreement was to reduce that liability. Alternatively, the Pensions Regulator may already have issued a clearance statement under section 42 in respect of such an agreement which would preclude the issuing of a contribution notice. If the narrow construction of regulation 2 is correct, the PPF will have to takeover that scheme's liability in any event.
90. As another example, there are important temporal limitations upon the power of the Pensions Regulator to issue contribution notices in that the power does not apply to acts or failures to act which first occurred either before 27 April 2004 or more than 6 years before the Pensions Regulator sought to issue the contribution notice, whereas Regulation 2(2) applies to agreements made at any time. Thus both past and future Bradstock compromises and apportionments which would otherwise fall outside Regulation 2(2) on its narrow construction would also fall outside the Pensions Regulator's powers to issue contribution notices in respect of them.
91. As to those, Mr Simmonds says that one can think of peripheral examples where it is possible, but if something is deliberate, it would be likely to be a main purpose. He accepts that the six-year limitation period is there but asks rhetorically how important it is. He says that it is implausible, particularly in the light of the member nominated trustee provisions which should ensure that the Trustees are not under the control of an unscrupulous employer. There is, of course, a tension on Mr Simmonds' approach, the members get the benefit of the doubt by their scheme entering the PPF, but those paying the levy carry the cost, a cost which they would not bear on Mr Newman's construction. What one can say perhaps with some confidence is that it will make no difference to the dishonest pension scheme manipulator that his dishonesty would result in the loss of PPF protection.
92. Mr Newman makes the point that the draftsman has already expressly provided for a number of exceptions to the applicability of Regulation 2(2) in the same legislative instrument (a point I think I have already mentioned), one of which exceptions involves the Pensions Regulator, through its approval of withdrawal arrangements. He said that there is accordingly, less need either to be concerned about the wide-ranging applicability of Regulation 2(2) or look to other provisions in the Pensions Act 2004 for protection of the PPF.
93. However, in agreement with Mr Simmonds, I do not think one can divide the Board and the Pensions Regulator in that way. It is clear that the Pensions Act 2004 creates an overall scheme for the regulation of pension schemes and protection of benefits. The Board and the Pensions Regulator have complementary roles. In particular, section 5(1)(c) includes one of the main objectives of the Pensions Regulator as being "to reduce the risk of situations arising which may lead to compensation being payable from" the PPF; and section 38(2) expressly recognises that the Pensions Regulator may make a contribution notice after the Board has assumed responsibility for the scheme, that is to say after it has entered the PPF.
94. My attention is drawn to some other provisions which might be of assistance in construing Regulation 2(2).

a. Section 39(2) might give the impression that a debt can be due before it has been quantified. However, section 39(5) provides that reference to a debt under section 75 includes a contingent debt and the impression would be false therefore.

b. Similarly, the provisions of section 38(8) and (9), 41(12) and 51(2) provide that debts for the purposes of the relevant sections include contingent debts.

c. Sections 137(2) and 143(5)(a) likewise refer to "any debt (including any contingent debt)".

95. In contrast, Regulation 2(2) says nothing about contingent debts. Mr Simmonds says that it is clear that the draftsman is well able to use the right phrase when he wants to and that the absence of reference to contingent debts is significant.

Conclusions

96. The Pension Proposal in the present case results in a legally enforceable agreement which operates to alter the apportionment provisions which take place on the winding up of the Scheme. It is an agreement which will be made before any triggering event giving rise to a debt under either section 75 or section 75A of the Employer Debt Regulations has occurred. At that time, there will be no debt then presently due to the Trustees. In my judgment, the Pension Proposal does not constitute an agreement, the effect of which "is to reduce the amount of any debt due to the Scheme". That phrase indicates, I consider, a temporal requirement that the debt is due at the time of the agreement. It is not enough that the agreement has the effect of reducing a debt which will, or even may, become due as a result of a triggering event in the future.
97. Whether a debt can be due before it is quantified is not a question I need to answer, nor therefore do I need to say whether the decision in Phoenix governs the meaning of Regulation 2(2). I do not consider that Regulation 2(2) is to be read as if it refers to a legally enforceable agreement, the effect of which is or will or may in the future be to reduce a debt which is or will or may in the future become due and payable (although I do not dismiss the possibility that it may include an agreement made when the debt has fallen due for quantification, e.g. when the Scheme commences winding up).
98. I reach this conclusion essentially for the reasons given by Mr Simmonds. Neither the broad construction nor the narrow construction in either of its formulations is entirely without unsatisfactory consequences or anomalies. In my judgment, the narrow construction (at least in its less narrow guise) more satisfactorily gives effect to the purpose of the PPF and the Pensions Regulator provisions. It recognises, in a way which the broader construction does not, the complementary functions of those two bodies and the fact they are designed to work together for the better regulation, protection and control of pension provision and it recognises also that in a number of provisions the distinction is clearly drawn between a debt due and a contingent debt; the absence of reference to the contingent debt in Regulation 2(2) suggests strongly to me that if the narrower or more literal interpretation is to be applied.
99. I will make declarations accordingly.