The Pensions Regulator agrees £25m settlement with owners of Silentnight

The Pensions Regulator (TPR) has agreed a settlement in its anti-avoidance case against the owners of the bed manufacturer Silentnight.

The Pensions Regulator (TPR) is a non-departmental public body which regulates work-based pension schemes in the United Kingdom.

TPR alleged that HIG Group, a US private equity group, deliberately brought about the unnecessary insolvency of the original Silentnight Group in order to buy its business out of administration, while leaving its defined benefit pension scheme behind.

HIG has paid £25 million to the scheme. The targets of TPR’s action, which were certain entities, members and executives, or former members and executives, of the HIG Group, disputed the case.

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Together with proceeds from the insolvency process, the scheme has received approximately £35 million.

TPR has published a regulatory intervention report detailing the case which sets out how the settlement brings certainty for scheme members and PPF levy payers.

Nicola Parish, TPR’s Executive Director, Frontline Regulation, said: “It is our view that HIG brought about the unnecessary insolvency of the original Silentnight Group in order to buy its business out of a pre-pack administration without the pension scheme. We believe this is unacceptable and it was vital we acted, in part as a deterrent against this type of behaviour in the future.

“We were prepared to hold settlement discussions in parallel to our enforcement action to see if an appropriate outcome could be achieved without the need to formally use our powers or risk prolonged legal action. This enabled us to avoid further costs and obtain certainty for scheme members.

“This was a complex enforcement case, involving the successful defence of a judicial review application against well-resourced targets in the UK and overseas. We continued to pursue our case despite those challenges.”

The anti-avoidance case related to the acquisition of the business by the HIG Group in May 2011, TPR said.

The TPR statement added: "At the time, various entities within the original Silentnight Group sponsored a defined benefit (DB) pension scheme which was in deficit. TPR’s report sets out how it pursued the use of its anti-avoidance powers after the scheme was severed from its sponsoring employers’ business by a pre-pack administration."

"TPR’s case was that the targets acquired the employers’ bank debt and used their position as lender to bring about the unnecessary insolvency of the employers. TPR alleged that the targets then took steps to buy the employers’ business at below market value as part of the administration process that followed.

"While the £25 million settlement is a substantial sum, the settlement, plus the additional recoveries from the liquidation, will not eradicate the scheme’s deficit on a Pension Protection Fund (PPF) basis, so it is expected to transfer to the PPF. The scheme has 1,200 members."

TPR’s case began in 2011. TPR issued two warning notices, in 2014 and in 2016, seeking contribution notices (CNs) against targets in the UK and overseas.

The statement added: "During the complicated and challenging case, TPR successfully defended a judicial review application by the targets in 2016. TPR’s decision to issue a second Warning Notice was challenged by the claimants claiming it was unlawful. However, they failed to obtain permission to bring judicial review proceedings against TPR."

A spokesman for HIG said it had no comment on TPR's announcement.

A source close to HIG stressed that the settlement, which HIG has made with no admission of guilt, draws a line under a 10-year dispute between parties with diverging opinions.

The source said the resolution is in the best interest for both parties and now enables HIG to support the future growth of Silentnight for the benefit of its employees and customers.

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