MPs have accused the former owners of turkey ham producer Bernard Matthews of "lining their own pockets" in a deal that saw the company's defined benefit pension scheme fall into the Pension Protection Fund.
On Saturday (13 April), the Work and Pensions select committee published letters from the firm's administrator which revealed Rutland Partners, the owners, had passed up a chance to save the company pension scheme because it would have left them out of pocket.
Instead, Rutland Partners sold the company to Boparan Private Office (BPO) using "pre-pack" insolvency arrangements, which allow a company to be sold as a going concern when it has already been declared insolvent.
Under pre-pack arrangements, the company's pension scheme may fall into the PPF - an event which sees members who have not yet retired being forced to take a 10 per cent benefit haircut.
But a letter from Deloitte, the firm that oversaw the administration proceedings, revealed BPO had previously made Rutland Partners an offer that would have saved the pension scheme.
However, this offer was rejected by Rutland Partners because it would have involved a write-off of the majority of their outstanding loans to their own company.
Under the pre-pack deal, on the other hand, these loans were given priority over the company's pension liabilities.
As a result, the committee stated the final deal had "drastically reduced" the amount recoverable by the pension scheme "to potentially less than 1p in the pound".
Deloitte’s letter also revealed the purchase agreement did not provide any assurances to the pension scheme or the PPF regarding the safeguarding of pension rights.
Given the pension scheme trustees did not consent to the deal, the committee said an application to the High Court was necessary to force it through.
The PPF is currently pursuing a claim for up to £75m.
Committee chair Frank Field said: "I have confidence that the PPF, working with the scheme trustees, will act in the best interests of the pensioners, but it is clear that the former owners passed up a better deal for pension scheme members in favour of lining their own pockets."
A PPF spokesperson said the Bernard Matthews pension scheme was "being assessed for entry into the PPF and we are working with the insolvency practitioner, the Pensions Regulator and the trustees of the scheme to maximise the recovery to the scheme".
Last week, FTAdviser's sister publication the Financial Times revealed nearly a fifth of schemes currently in the PPF were there because of pre-pack insolvency arrangements.
That equated to £3.8bn worth of pensions assets being offloaded to the lifeboat fund.
Responding to the FT's investigation, the PPF's head of restructuring Malcolm Weir downplayed the implications of the use of pre-pack rules.
He said the lifeboat fund had been "educating insolvency practitioners on the need to engage before any pre-pack insolvency".
"A pre-pack insolvency may be entirely appropriate in the circumstances but this needs to be demonstrated," he said.
"The number has dropped significantly in the last few years and, while some cases have caused us concern, we do not believe there is an issue of widespread abuse of this mechanism."
He said the PPF had "strong controls" in place to take action "if a scheme comes to the PPF through a pre-pack insolvency without prior engagement or where we have concerns".
The new focus on pre-pack sales comes just over a month after Sir Philip Green agreed to pay up to £363m into a new pension scheme for BHS employees - a move which will see most members come out of the PPF.
It also comes as the government consults on a range of potential reforms to the DB sector to prevent more schemes falling into the PPF.
james.fernyhough@ft.com
