Law firm Eversheds has been at the forefront of a landmark decision by the Pensions Regulator requiring ITV to provide support for the Boxclever Group Pension Scheme, which has a deficit of £62 million.
The Box Clever joint venture was set up in 2000 as a merger of the declining Granada and Thorn TV rental businesses. Box Clever was established to enable Granada and Thorn to extract the full value of the businesses in cash.
Granada, which later merged with Carlton Communications to form ITV, received more than £500 million. In order to fund this Box Clever had to borrow £860 million from West LB.
In September 2003 PriceWaterhouseCoopers were appointed administrative receivers after the Box Clever companies proved unable to service the debt.
In 2005 the Box Clever businesses were sold to new owners by the administrative receivers. The proceeds were not sufficient to meet the claims of the unsecured creditors of which the trustee of the pension scheme was one.
The Box Clever Pension Scheme was left massively underfunded. At the end of 2009 it had assets of just £14.4 million to cover the £76.5 million required to provide pensions for its 3,000 members - a deficit of more than £62 million.
After a recent private hearing, the Determinations Panel of The Pensions Regulator made a Financial Support Direction requiring ITV to put in place financial support for the Box Clever Pension Scheme. ITV has now lodged an appeal to the Upper Tribunal.
Alan Herbert, chairman of Box Clever Trustees Limited, said: “It was clear as soon as the administrative receivers were appointed in 2003 that the scheme would be in trouble. The trustee has been seeking ever since to have the founders, who received the best part of £1 billion from Box Clever, make good the deficit for their former employees.
“ITV did make a series of small and ever diminishing offers but eventually refused any compensation whatever, even though it had made a significant provision in its accounts for this.”
“The trustee is delighted that the Pensions Regulator picked up the case and concluded that it should make a Financial Support Direction to require ITV to address the problem.
“ITV has fought hard against this. We very much hope that, rather than spending more time and money on appealing, the ITV board of directors will on reflection now accept the ruling and start constructive discussions as to how the Box Clever pensioners can be protected.
“The trustee applauds the steps the Pensions Regulator has taken to protect the scheme’s pensioners. ITV took over £500m out of Box Clever. It would not be right for the pensioners to suffer. Nor for the burden to be dumped onto the Pension Protection Fund which has to look to other pension schemes and their employers to fund the schemes that fail. ”
Giles Orton, partner at Eversheds, who acted for the trustee said: “This is a significant decision. The Pensions Regulator is still feeling its way with the power given to it by Section 43 of the Pensions Act 2004 to make Financial Support Directions. It has already used the power on large insolvent groups such as Lehman and Nortel. This is the first time it has looked at a joint venture – and one that was set up before the new legislation came into force.
“It is hard to envisage a clearer case of companies extracting cash off the top whilst leaving pensioners attached to a weak subsidiary that was overloaded with debt.
“The Pensions Regulator has concluded that this is just the sort of situation it was empowered to deal with.
“Indeed, if this was not a case for a Financial Support Direction, it is hard to see what is.”