SANCTION: 'moral hazard' powers used for the first time


A stark warning has been issued to lawyers that they should clear all corporate activity with implications for final salary pension schemes through the Pensions Regulator.



The warning came as the regulator last week published two financial support directions (FSD) against transport group Sea Containers. The FSDs, the first time that the regulator has used its 'moral hazard' powers since its establishment in April 2005, required Sea Containers to put in place financial support of around £90 million to cover the deficits in two pension schemes associated with one of its subsidiary companies.



Osborne Clarke pensions partner Jonathan Hazlett described the regulator's decision to issue the FSDs as 'a forceful reminder' that it was willing to use its powers when a corporate activity - in this instance, restructuring under the US Chapter 11 bankruptcy protection process - was to the detriment of a pension scheme.



He said: 'The very public naming and shaming of Sea Containers, because it is deemed to have failed to support its subsidiary's pension scheme, brings these issues to the fore for everyone - lawyers and clients - involved in transactions.'



He added that the regulator had chosen a challenging first case on which to exercise its powers - a Bermuda-registered company under Chapter 11 protection.



A spokeswoman for Sea Containers said: 'It has always been the company's expectation that any restructuring plan of reorganisation proposed under the Chapter 11 bankruptcy protection process would be subject to the Pensions Regulator's clearance procedure, but the company is nevertheless disappointed in the outcome of the hearing [which took place in London on 12 and 13 June 2007]. The company will give its full comments once the regulator's determination panel has given its reasons and will consider, once it has received them, whether an appeal is appropriate.'



Jonathan Rayner