Hoover’s chance to clean up as members swept into PPF

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Hoover Limited (“Hoover”), the domestic appliance manufacturer historically owned by the iconic US vacuuming company, recently cut ties with its main pension scheme – which will result in the transfer of around 7,500 members into the UK’s pension safety net, the Pension Protection Fund (PPF).

In June, The Pensions Regulator (TPR) revealed its approval of a Regulated Apportionment Arrangement (RAA) in relation to the Hoover (1987) Pension Scheme, a process by which the company (which has been experiencing serious financial difficulty) can free itself from its obligation to fund the scheme. 

TPR has commented previously that “RAAs are extremely uncommon; the expectation when they were introduced into legislation was that they would be used rarely”.  TPR highlights that a RAA is only agreed if specific strict criteria are met, including:

  • whether insolvency of the employer would be otherwise inevitable or whether other solutions would prevent this;
  • whether the scheme might receive more from an insolvency;
  • whether a better outcome might be arrived at by other means;
  • the position of the remainder of the employer group; and
  • the outcome of the proposal for other creditors.
As at March 2016, the scheme had a buy-out basis deficit of approximately £500 million and a PPF basis deficit of approximately £300 million.  An appropriate recovery plan was not implemented at this point due to the trustee and employer being unable to agree on an appropriate level of deficit repair contributions to be paid by the employer.  As a result of this, TPR decided (in an unprecedented move) to appoint a “Skilled Person” to determine the contributions that the employer could afford to pay into the Scheme. 

The Skilled Person’s report found that Hoover was unable to fund sufficient deficit repair contributions and in addition, would not be able to sustain the current inadequate level of payments.  The Skilled Person concluded that the only way to properly fund the scheme would be with support from Hoover’s current owners, Candy Group- and its shareholders.  However, with no legal obligation to provide funding support to the Scheme, Candy Group declined to do so.

Interestingly, TPR appears to have decided not to pursue Hoover’s Italian-based parent, Candy Group, any further and instead continued investigations into the implementation of a RAA.  TPR has not published any investigation in relation to how the scheme’s deficit grew so large over recent years, if indeed it took such an action.

Hoover originally applied for a RAA in 2015, but TPR declined this on the basis that insolvency did not appear to be an inevitability.  Not long afterwards, Hoover approached TPR with the offer of a Company Voluntary Agreement (a process by which the company could reach a voluntary agreement with its creditors regarding the repayment of debt), but this was again rejected.

However, with trading difficulties continuing and further problems caused by the fall in sterling after the Brexit vote, forecasts showed that Hoover would enter into insolvency within 12 months.  At this point, following discussions between the TPR, Hoover and the scheme’s trustees, decided that a RAA was a necessary solution to the scheme’s deficit and was in the best interest of all parties affected.  TPR has emphasised that RAAs are extremely uncommon, but in this case it believed all of the necessary criteria were met.

As part of the agreement, the scheme will receive a cash lump sum of £60 million and a 33% stake in Hoover.  Further, Candy Group agreed to write off the debt owed to it by Hoover.

The RAA means that the scheme has entered into a PPF assessment period, with its 7,500 members ultimately expected to be transferred into the PPF.  Meanwhile, Hoover has been given the opportunity to trade itself out of difficulty.

Cerys Wolff contributed to the writing of this blog post