Restructuring case study

Halcrow Pension Scheme – ground-breaking solvent restructuring of DB pension scheme

In severe financial difficulties, engineering consultancy Halcrow sought to restructure its pension liabilities to preserve its business and avoid its pension scheme entering the PPF.

The proposed restructuring hinged on whether members could be transferred to a new scheme without their consent.  Under the Preservation legislation, this is only permitted where an actuary can certify that the benefits in the receiving scheme are “broadly no less favourable” than the benefits in the transferring scheme.  As it was clear that the headline benefits of the receiving scheme were lower, the Trustees applied to the High Court for directions (“Pollock v Reed”).

Hugely complex and novel, the multi-party case was so commercially sensitive that it was held in private with the judgment embargoed for several months.  Our team of litigators worked tirelessly alongside the core Sackers’ team to bring the application to Court within an incredibly short timeframe so as to ensure a hearing during summer recess.

The Trustees sought a declaration as to whether the actuary could give the certificate because members would, in reality, receive better benefits than they would via PPF compensation.  “With some reluctance”, the judge concluded that it was not possible to proceed.

Undeterred, and working closely with the Trustees, employer, other advisers, TPR and PPF, we set out to find and implement a new workable solution.  The restructuring involved establishing a new sustainable scheme, providing identical benefits to the old scheme, but with revaluation and pension increases reduced to statutory levels.  The new scheme benefited from a cash payment of approximately £80 million and a £50 million US parent company guarantee.  Unlike the earlier proposal, the transfer was with member consent, with those choosing this option getting a one-off uplift.  Anyone who chose not to transfer would get benefits via PPF compensation.

Given the financial pressures on the company, completing the project quickly and efficiently was critical, as was ensuring member communications were comprehensive and empathetic.  New legislative hurdles also had to be overcome, including problematic aspects of tax and contracting-out legislation.

As the lead trustee adviser, we had to deploy far more than our technical expertise with our commercial dexterity, flexible working practices and sensitive approach taking centre stage as well as commitment and a determination to succeed.

On 5 October 2016, consenting Halcrow members (93% of the membership) transferred to their new scheme.  This marked the culmination of two years of hard work.

The Halcrow project was undoubtedly one of the landmark transactions of 2016.  TPR cited Halcrow as an example of how the existing regulatory and legislative framework can provide members with better outcomes than the PPF, where employer insolvency is otherwise inevitable.  It is only the second such transaction to have been completed, and the first where the employer was not already deemed insolvent.

Chris Martin, ITS Managing Director and independent trustee of Halcrow Pension Scheme:  “Sackers played a central role in the innovative pensions and corporate restructuring of Halcrow.  They demonstrated the ability to test and constructively challenge proposals from the sponsor to allow the Trustees to deliver the best outcomes for members in extremely challenging circumstances”.

Faith Dickson, Sackers’ partner: “We have demonstrated that it is possible, though not straightforward, to act now to make DB schemes sustainable within the constraints of the current legislative and regulatory framework”.