Bloom & Ors v The Pensions Regulator & Ors

Factual and Procedural Background

The appeals concern complex questions arising from the impact of pension protection legislation on companies undergoing insolvency processes. The proceedings began in September 2010, with trial in November 2010 before Judge Briggs, who delivered judgment in December 2010. Permission to appeal was granted, and the appeals were heard in July 2011.

The legislative framework involves the Pensions Act 1995 and the Pensions Act 2004, which address employer debts to occupational pension schemes, particularly defined benefit schemes in deficit. Section 75 of the 1995 Act created a provable debt owed by employers to pension trustees, linked to scheme deficits at winding-up or insolvency events.

The 2004 Act introduced the Pensions Regulator and provisions allowing it to issue financial support directions and contribution notices to companies associated with an employer to provide financial support for pension schemes. These notices impose liabilities to cover pension deficits but do not expressly address their treatment in insolvency proceedings.

The appeals arise in the context of insolvency proceedings involving companies within two major groups, referred to here as Company Group A and Company Group B. The Pensions Regulator had initiated processes under the 2004 Act but had not yet issued financial support directions or contribution notices to the companies involved. The legal issues concern how liabilities under such notices should be treated in insolvency.

Legal Issues Presented

1. Whether a liability under a contribution notice issued during administration is a provable debt in that administration.
2. Whether such a liability, if not provable, is payable as an expense of the administration or liquidation.
3. What the priority and treatment of liabilities under financial support directions and contribution notices should be in insolvency proceedings.
4. The implications of the absence of express statutory provision in the Pensions Act 2004 regarding insolvency treatment of such liabilities.
5. The effect of timing in the issuance of financial support directions and contribution notices relative to the commencement of insolvency procedures.

Arguments of the Parties

Appellants' Arguments

• The administrators of Company Group A argued that the liability under a contribution notice constitutes a provable debt in administration.
• The administrators of Company Group B contended that such liability falls into the "black hole," meaning it is neither provable nor payable as an expense, effectively unrecoverable.

Respondents' Arguments

• Some respondents argued the liability should be treated as a provable debt if the court did not accept it as an expense.
• Certain solvent respondents challenged the rejection of application of the principle from Ex parte James, which concerns priorities in insolvency.
• The Pensions Regulator emphasized the statutory framework and the reasonableness tests involved in issuing financial support directions and contribution notices.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Stein v Blake [1996] 1 AC 243	Definition of cut-off date and treatment of debts and liabilities in insolvency.	Established that debts are determined as at the start of insolvency, ignoring later changes such as interest or exchange rates.
Re Dynamics Corporation of America [1976] 1 W.L.R. 757	Application of cut-off date in insolvency and treatment of foreign currency debts.	Supported the principle that post-cut-off date changes are generally ignored.
Wight v Eckhardt Marine GmbH [2004] 1 AC 147	Liability transfer affecting provability of debts in insolvency.	Illustrated exceptions where liability changes post proof of debt.
Re Lundy Granite Co (1871) LR 6 Ch App 462	Principle of expenses in insolvency, particularly rent payable as an expense.	Established that certain liabilities may be treated as expenses with priority in insolvency.
Re Toshoku Finance UK plc [2002] UKHL 6	Whether statutory liabilities imposed on companies in insolvency are payable as expenses.	Held statutory liabilities imposed during insolvency are necessary disbursements payable as expenses.
Re T & N Ltd [2006] 1 WLR 1728	Provability of tort liabilities contingent on damage occurring before insolvency.	Confirmed that liabilities without accrued cause of action at insolvency are not provable.
Glenister v Rowe [2000] Ch 76	Contingent liabilities and provability of costs orders in insolvency.	Held that risk of costs order contingent on court discretion is not a provable debt.
Foots v Southern Cross Mine Management Pty Ltd [2007] HCA 56	Similar statutory provisions on provability of contingent liabilities.	Confirmed that probable but not yet certain liabilities are not provable debts.
R (Steele) v Birmingham City Council [2006] 1 WLR 2380	Repayment liabilities contingent on determinations not provable at insolvency.	Held no contingent liability existed before determination by Secretary of State.
Haine v Day [2008] EWCA Civ 626	Provability of protective awards as contingent liabilities.	Found protective awards arising from pre-insolvency breaches are provable debts.
Union v Nortel Networks UK Ltd [2010] EWHC 826 (Ch)	Claims for unfair dismissal and breach of contract provable in administration.	Confirmed that such claims arising from pre-insolvency obligations are provable debts.
Secretary of State for Trade and Industry v Frid [2004] 2 AC 506	Set-off of contingent claims and statutory obligations in insolvency.	Held contingent statutory obligations can give rise to set-off if arising pre-insolvency.
Re Atlantic Computer Systems plc [1992] Ch 505	Discretionary treatment of liabilities as expenses in insolvency.	Established discretion in paying liabilities as expenses based on benefit to estate.
Re Kentish Homes Ltd [1993] BCLC 1375	Application of discretion over payment of community charge as expense.	Held liability not payable as expense absent benefit to the estate.
Re Mesco Properties Ltd [1979] 1 WLR 558	Tax liabilities in liquidation as expenses.	Confirmed tax liabilities imposed by statute are necessary disbursements.
Re Allders Department Stores Ltd [2005] EWHC 172 (Ch)	Statutory redundancy payments not payable as expenses in administration.	Held such payments are not expenses under insolvency rules.
Exeter City Council v Bairstow [2007] EWHC 400 (Ch)	Non-domestic rates payable as necessary disbursements in administration.	Held rates are payable as expenses regardless of occupation status.

Court's Reasoning and Analysis

The court began by examining whether the liability under a contribution notice issued during administration qualifies as a provable debt under rule 13.12 of the Insolvency Rules 1986. The court noted that a provable debt must be an obligation existing at the commencement of the insolvency or one arising from an obligation incurred before that date.

The court analyzed relevant case law on contingent liabilities, concluding that a prior legal obligation is essential for a liability to be considered provable. The financial support direction and contribution notice regime involve significant discretion by the Pensions Regulator and other bodies, and no binding obligation exists on the company before the insolvency commencement. Therefore, the liability under a contribution notice issued after the insolvency commencement is not a provable debt in administration.

The court then considered whether the liability is payable as an expense of administration or liquidation. Applying the principle from Re Toshoku, the court held that statutory liabilities imposed on a company during insolvency, even if not provable debts, are generally payable as necessary disbursements (expenses) of the insolvency process.

The court found that the Pensions Act 2004 imposes obligations on companies in insolvency to comply with financial support directions, and the related contribution notice liabilities are binding on the company. Although the Act does not expressly address insolvency treatment, these liabilities fit within the category of expenses payable by administrators or liquidators.

The court acknowledged anomalies and difficulties arising from this treatment, including the difference in priority between section 75 debts (provable but not preferential) and contribution notice liabilities (payable as expenses with higher priority). However, the alternative—treating these liabilities as neither provable nor expenses—would render the regime ineffective in insolvency situations, which the court rejected as contrary to parliamentary intent.

Accordingly, the court upheld the conclusion that liabilities under contribution notices issued during administration are not provable debts but are payable as expenses of the administration. If a liquidation follows, the liability becomes provable in liquidation if the financial support direction was issued during administration.

Holding and Implications

The court's final decision is that the liability under a contribution notice served on a company in administration is not provable as a debt in the administration but is payable as an expense of the administration. If the company subsequently enters liquidation, and the financial support direction was issued during administration, the liability is provable in the liquidation.

This decision means that the contribution notice liability ranks with higher priority as an expense in administration, rather than as a provable unsecured debt. The court recognized anomalies and potential impacts on insolvency and pension protection policies but found that the statutory framework and case law compel this conclusion. No new precedent altering insolvency principles was established; rather, the court clarified the application of existing insolvency law to the novel pension protection regime.