Burgess COMMENTARY

Peter Burgess

Bernard Matthews pension pot to receive just 1p in the pound ... Pension Protection Fund to absorb company’s benefit scheme after post-sale ‘pre-pack’ arrangements hit pension pot

Bernard Matthews processing plant at Holton, Suffolk Photograph: Chris Radburn/PA

The pension pot at Bernard Matthews is set to miss out on millions of pounds in payouts under the company’s rescue package – despite “corporate elites” getting their money back in full.

MPs have vowed to review the pre-pack model for businesses going into administration, which has been dubbed “a huge detriment to pensioners”.

A report for the Commons work and pensions select committee found the deficit on the Bernard Matthews pension fund is now likely to be around £20m.

But the fund is only due to receive 1p in the pound, as part of its pre-pack model arranged by administrators Deloitte.

This is despite sale proceeds of the company being used to make a full payment of £46.4m to lenders Wells Fargo Capital Finance (UK) and PNC Financial Services UK Ltd.

Rutland Partners, which was Bernard Matthews’s ultimate owner, has already received £34m and is likely to receive a total of £39m.

Deloitte, meanwhile, has already billed £790,000 and its legal fees are likely to amount to £668,000. The hourly rate for Deloitte and its advisers is between £390 and £872 per hour.

A briefing report by Prof Prem Sikka, from the University of Essex, notes that Deloitte and Rutland Partners had a “prior relationship”.

The report says: “The administration strategy seems to have been carefully crafted to enable secured creditors and controllers of Bernard Matthews to extract maximum cash from the company and dump the pension scheme and other liabilities.

“No attention has been paid to the hardship caused to retired and existing employees.

“It is all too easy for companies, their directors and shareholders to extract cash and dump pension obligations to employees, leaving the Pension Protection Fund or taxpayers to foot the bill, and effectively boost returns to corporate elites.”

Pre-pack administration arrangements are where a buyer is lined up to take on a company’s assets, but without liabilities such as pension deficit.

Those who back pre-pack arrangements say it may enable a company to survive and rescue jobs.

But Sikka says the confidentiality of the deal hides its true nature, while creditors are not consulted and typically lose out.

Unsecured creditors worth £39m are also unlikely to receive more than 1p in the pound, which includes around £1.4m to HMRC for tax and National Insurance contributions.

Sikka’s report warns that administrators are left with “enormous powers and discretion” over who gets what when a company enters administration.

He adds that administrators “may well be swayed by their fees and prior relationships with company directors or parties to the sale/purchase of business.

“It is not unusual for major accountancy firms to receive business, including insolvency work, from banks,” added Sikka.

The Pension Protection Fund, which is funded through levies on private sector employers, has been lined up to absorb Bernard Matthews’s defined benefit scheme.

Committee chair, Frank Field, said: “What looks likely to be an increase in these pre-pack arrangements, which act to the huge detriment of pensioners, and bump up still further the levies on good employers through increased Pension Protection Fund contributions, is no doubt an issue the committee will want to look at early on parliament’s return.

“We expect that the Government will soon publish a new Pensions Bill, and this may offer the committee an opportunity of proposing further reforms so as to protect better the position of pensioners in circumstances similar to Bernard Matthews Ltd.”