Case study

Distressed employer

The client

A small UK based machine servicing company with a closed defined benefit scheme. The pension scheme was the largest company creditor.

The problem

Whilst the company had a healthy business pipeline, based on current order books it was likely to run out of cash in fifteen month’s time. This would mean that the company would go into receivership and the pension scheme would tip into the Pensions Protection Fund.

The solution

We already had a close working relationship with the company as part of our employer covenant monitoring process. As part of this we had  previously met with the shareholder to discuss the future of the company and the funding of the pension scheme.

We wrote to the shareholder to test the appetite for supporting the scheme, either by way of a guarantee of the company’s obligations or by supporting the company through its cash flow difficulties and followed this up with a face to face meeting.

During this time, we worked with the scheme advisers to ensure that we had a full record of adhering and principal employers since the scheme started, that the member data was up to date and any members with missing addresses were traced. The administrator also reviewed the data to identify the specific group company which members worked for.  We also began the planning the strategy for communicating with members so that if the scheme had to enter the PPF they would receive assurance about their individual pension entitlement.

The result

The shareholder indicated that whilst they would not provide a guarantee to the Trustees they would provide an injection of capital to the company to allow for a further three years running costs,  including increased contributions to the pension scheme. This meant we could avoid seeking an out of cycle actuarial valuation and the resulting recovery plan which would force the company into liquidation. We continue to closely monitor the employer covenant at quarterly meetings to receive information about cash flow,  business pipeline and industry developments.

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