• a seller sells, and a buyer buys, shares in a company
• the sale and purchase agreement is made between the buyer and the owner of the Target's shares
• there is no change in the direct ownership of the Target's business
• the buyer may be an individual or another company.

• a buyer acquires the assets make up the business, e.g. plant and machinery
• the sale and purchase agreement is made between the buyer and the owner of the business
• as a result of the sale, some or all of the employees employed by the business transfer their employments to the buyer.

• Sale and Purchase Agreement
• Pension-related items:
  • warranties from the seller
  • indemnities from buyer/seller which usually adress specific issues which could result in a loss to one party
  • Pensions schedule describing terms of any transfer of accrued liabilities
• Will depend on type of pension scheme and whether or not its a share or business sale

• Binding statrement of fact about certain aspects of the Target or business
• usually reflect structure of the transaction (shares or the business)
• results of the buyer's formal investigations into the seller's pension arrangement
• seller discloses facts against a warranty which would otherwise be in breach of it.
• buyer may be able to recover losses resulting from inaccurate warranties

• binding promise to be responsible for another's loss.
• commonly thought that the party with the benefit of an indemnity does not need to mitigate its losses.  But the law is not clear on this point.

• all pension and life insurance schemes which the Target has any liablility to contribute have been fully disclosed to the buyer
• all contributions due have been paid, and paid on time
• there are no disputes involving members
• trustees and Target have complied with the governing documentation and all laws
• the arrangements are registered with HMRC
• all documentation, member communications and data has been disclosed

For a share sale, what additional warranties would a buyer want for a Target with a DB scheme?

• No section 75 debts due
• seller is not aware of anything that could result in the Target having a contribution notice or financial support direction imposed on it
• Target has not been party to an application for clearance
• Target has not done anything which could predujice the scheme's eligibility to enter the PPF

• section 75 debt
• pension liabilities as a result of previou transfers under TUPE
• pension liabilities resulting from the regulator imposing a contribution notice or financial support direction.

What does TUPE stand for?

Give a brief definition of TUPE.

The Transfer of Undertakings (Protection and Employment) Regulations 2006

Where all liabilities of the seller in respect of its employees pass to the buyer, except for any liabilities in respect of old age, invalidity, or survivors benefits under an occupational pension scheme.

If the seller provides a DB scheme, what critieria must the buyers receiving scheme satisfy?

What Act requires this?

• it's a DB scheme that satisfies the RST or which receives contributions of 6% of pensionable pay from the employer; or
• it's a DC scheme which the employer matches the employee's contributions up to 6% of pensionable pay.

Finance Act 2004

• All pensions payable other than at normal pension age were not 'old age' benefits and accordingly would pass under TUPE
• Enhanced rights on redundancy not 'old age'
• Early retirement benefits would pass

• the employees will immediately cease to accrue benefits and will become deferred members
• a TV may be paid to an occupational scheme of the buyer
• the buyer may be substitued as the principal employer.

In what circumstances does an employer become liable to a section 75 debt?

• employer becomes insolvent
• pension scheme is wound up
• employer ceases to participate in a multi-employer scheme.

Who can be issued a financial support direction?

What does a FSD do?

Can be issued where the employer is a service company or is 'insufficiently resourced'.

FSD's make a person liable for an employer's pension obligations.

Where a company at risk may apply voluntarily to the regulator for a clearance statement confirming that the regulator will not exercise its powers to issue a contribution notice or financial support direction on them.

• seeking clearance draws PR's attention to transaction - increased exposure to anti-avoidance powers
• Only effective in relation to specific facts provided to PR
• PR has issued guidance on when clearance should be sought

Where the employer has an underfunded scheme on the higher of the FRS17 or scheme funding basis and:

• a group company grants a charge over assets that does not solely relate to new money and granting the charge affects more than 25% of the total assets of the employer
• a group company makes a large or unusual return of capital to an entity which would not be the subject of a financial support direction and where the company has negative distributable reserves after making the return of capital.
• the event is a change of control within the employer's corporate group that materially reduces its financial support.

What is a Type C event?

What does an apportionment provision in the TDR do?

When would it be appropriate to exercise this?

Provides for the employer and trustees to agree from time to time that a section 75 debt be calculated in a manner they agree.

• on a group re-organisation - members continue to be employed by same corporate group and the financial strength of the new employers is no worse than that of the old employers.
• where all members are transferring their past and future service liabilities to a different pension scheme, and payment of a section 75 debt could unjustly enrich it.

• section 75 debt on ceasing to participate calculated at least on the weak MFR basis
• another company provides a guarantee equal to the difference between the debt paid and what the section 75 debt would have been on the buy out basis.

• The AWA must make it more likely that the section 75 debt be paid in full.

• Cannoth apply Where the employer can pay the section 75 in full but would be materially financially damaged by doing so.

What two ways can a bulk tansfer be achieved?

Describe those two ways.

• With member consent 
  • each member provided with full details of the benefits promised in new scheme and offered choice to transfer or remain as deferred member.
• Without member consent
  • Conditions:
  • that the TDR permit such a transfer
  • the actuary to the seller's scheme has issued a certificate under GN16
  • that the trustees of the seller's scheme consider that the bulk transfer would not adversely afffect the security of the member's accrued rights.

Before:  consent of HMRC required

After:  no consent required and tax effective provided that it takes place between registered pension schemes.  Transfers have to be reported in Annual Scheme Return.

Due Diligence

·         The process during which the buyer investigates the Target to discover whether or not to proceed with purchase negotiations

·         Usual for buyers to instruct solicitors and accountants to undertake legal and financial enquiries and produce a report of their findings

·         The information about the Target is provided by the seller (usually in what is known as a ‘data room’)

o   Not unusual for the buyer to request further information

·         Depending on the size and complexity of the Target as well as the availability of information, the due diligence may be long and very detailed.

Negotiation, Signing and Completion

·         After due diligence process the terms on which the sale will be concluded are negotiated

o   Whether they end up favourable to the buyer or seller depends upon the parties relative bargaining power

o   When the terms have been agreed they are documented in the SPA

·         When SPA is agreed, it will be signed by the parties to it.

o   The sale does not take effect until completion

o   It is possible for either signing and completion to occur simultaneously or for there to be a period of time between signing and completion

o   A gap usually occurs where certain conditions have to be met after signing but before completion can take place.

• Target is sole employer of an OPS
  • scheme remains with Target and becomes part of the buyer's corporate group
• Target is principal employer of multi-employer scheme
  • scheme will remain with employer
  • scheme will become part of buyer's group
  • NOt an issue where the buyer is acquiring Target and other participating companies
• Target is participating employer
  • scheme will remain with employer
  • Scheme will not come with the Target
  • Target will cease to participate in scheme
  • Can have temporary participation for a year - not common nowadays
• Target contributes to Stakeholder or GPP
  • obligation to contribute will remain with the Target
• Will also need to consider s75 debts requirements and whether to seek clearance and whether to discuss with trustees.