A group with a £200m pension deficit but achieving £6m EBITDA – what should a new management team do when they realise this is the situation?
The obvious answer was to put the company into an insolvency procedure. However, where, for example, the company’s business is heavily contracts based, the company would have lost everything.
In this case, with the help of a range of advisers, while ultimately the pension went into the Pension Protection Fund PPF (which is where it would have gone in any event), the company was saved.
As part of the solution agreed, a 10% shareholding in the company was issued to the PPF, and venture capital was raised enabling a substantial payment to be made to the PPF and for the company to be well funded going forwards.
What would have happened if management had assumed insolvency was inevitable?
The likely result was that the pensioners would have gone to the PPF anyway, and the PPF would not have received either cash or the shareholding in the company (which they subsequently sold for a substantial amount).