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PPF drop ins and clearance – significant changes . Clive Pugh Richard Pettit 5 October 2010. Introduction. Bonas – the implications for clearance PPF drop-ins – Significant issues in practice The changing attitude of the Regulator to clearance and moral hazard
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PPF drop ins and clearance – significant changes Clive Pugh Richard Pettit 5 October 2010
Introduction • Bonas – the implications for clearance • PPF drop-ins – Significant issues in practice • The changing attitude of the Regulator to clearance and moral hazard • Major concerns for the Regulator • Conclusions • Questions
Bonas - background • The facts of the case • What are the basic elements that must be satisfied for a contribution notice to be issued? • Is the judgment robust?
Bonas – Grounds of criticism (I) • The “reasonableness test” • Did the target receive any benefit? • Follow the money/benefit in the relationship • Was the pre-pack itself materially detrimental? • Failure to raise this argument in time
Bonas – Grounds of criticism (II) • The nature of voluntary support • Why should this impose an obligation to pay the debts of another? • The “cost of clearance” • Voluntary nature of clearance • Conclusions from Bonus and the appeal
PPF drop-ins – Significant issues in practice • The stages in the process • The different approaches of the Regulator and the PPF • Imminent insolvency? • Previous employers • Triggering a cessation event under Regulation 9(4) • Protecting the parties without compromising a debt
The changing attitude of the Regulator to clearance and moral hazard • Aligning the interests of the employer, members and the trustees • The differing interests of the Regulator • Have the trustees taken independent advice? • What innovative approaches may be acceptable to the Regulator?
Major concerns for the Regulator • Trustee and advisor conflicts • ERI • Full, independent advice, from advisors with expertise in the area • Priority drift and the long term future of the scheme
Conclusions • Bonas • Risk for pre-packs • Is there an increased risk of moral hazard actions by the Regulator • Consider PPF drop-ins • Changing approach of the Regulator
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