Out-Law / Your Daily Need-To-Know

Out-Law News 3 min. read

ITV must fund rental business' pension scheme deficit, regulator says


Media company ITV plc is appealing a decision requiring it to fund the £62 million pension fund deficit of a TV rental business it was never involved in, according to the law firm representing the scheme's trustees.

The company was issued with a financial support direction (FSD) by the Pensions Regulator requiring it to cover the pensions of 3,000 members of a scheme run by Box Clever, the former TV rental business of one of the television companies which came together to form ITV plc in 2004.

Under the Pensions Act 2004 the regulator has the power to issue an FSD to an employer or a person "connected or associated" with it, to put financial support in place for a defined benefit pension scheme within a specified period of time. Compensation to pension scheme members whose employers have become insolvent is otherwise paid by the Pension Protection Fund (PPF), which is funded by a levy on solvent eligible defined benefit pension schemes.

Box Clever was formed by the merger of Granada and Thorn's TV rental businesses in 2000 and was established to enable them to “extract value from the consumer rentals businesses of those groups, but leave them able to share in any future profit” according to the Pensions Regulator’s findings from Eversheds, the law firm which represented the pension scheme trustees. Granada, which later merged with Carlton Communications to form ITV, received over £500m.

The rental business went into administration in 2003 and was sold to a new owner. The proceeds of the sale were not enough to meet the claims of the unsecured creditors, including the pension scheme trustees.

Alan Herbert, chair of the pension scheme trustees, said he was "delighted" that the regulator had picked up the case.

"It was clear as soon as the administrative receivers were appointed in 2003 that the scheme would be in trouble. The trustee has been seeking ever since to have the founders, who received the best part of £1 billion from Box Clever, make good the deficit for their former employees. ITV did make a series of small and ever diminishing offers but eventually refused any compensation whatever, even though it had made a significant provision in its accounts for this," he said.

"[We] applaud the steps the Pensions Regulator has taken to protect the Scheme's pensioners. ITV took over £500m out of Box Clever. It would not be right for the pensioners to suffer; nor for the burden to be dumped onto the Pension Protection Fund which has to look to other pension schemes and their employers to fund the schemes that fail."

ITV plc said it had lodged an appeal with the Pensions Regulator, as it had "never participated" in the Box Clever scheme and had no control over the growth of its deficit.

"ITV is appealing the ruling of the panel and will pursue this vigorously. No financial support direction may be issued against ITV while an appeal is pending," a spokesperson for the company said.

Pensions law expert Simon Tyler of Pinsent Masons, the law firm behind Out-Law.com, said that the case was a reminder to pension scheme trustees of the impact that the scheme’s sponsoring employer entering into a joint venture arrangement could have on its ability to pay contributions. The case was the Pensions Regulator's first use of a financial support direction in respect of a joint venture, he said.

"The case shows that an attractive joint venture deal may be less appealing years later when defined benefit deficits come home to roost. It is another reminder that companies may be held liable for deficits in defined benefit schemes in which they have never participated, as the Regulator considers financial support directions appropriate against companies that have extracted cash from a joint venture through heavy borrowing,” he said.

Although ITV was not guilty of any misconduct in this case, the Regulator found the financial support direction appropriate as ITV received £500m from the joint venture arrangement despite Box Clever’s heavy borrowing being secured against its own assets rather than those held by Granada or Thorn, he said.

The case remained highly contested as the series of share transactions that led to the formation of ITV plc from the original companies, including Granada, left ownership of the participating companies in doubt at the date chosen by the Pensions Regulator to assess the case, Tyler added.

" The Pensions Regulator expects this case to drag on for several more months in the light of the appeal to the Upper Tribunal,” he said.

Editor’s note 01/02/2012: some changes were made to this story when the Pensions Regulator’s findings were published to reflect facts contained in those findings.

We are processing your request. \n Thank you for your patience. An error occurred. This could be due to inactivity on the page - please try again.