Bernard Matthews' formers owners rejected the chance to save the firm's £75m pension scheme and accepted a deal to ditch it into the UK's pension lifeboat, correspondence released today has revealed.
MPs accused Rutland Partners, which owned the turkey firm between 2013 and 2016, of "lining their own pockets" instead of looking out for pensioners.
Correspondence published today revealed Rutland had the opportunity to sell the business in July 2016 to current owners BPO through a deal that would have seen most of its £25m investment into the firm wiped out.
But instead of accepting the offer, it called in administrators from Deloitte to force through a separate pre-pack deal with BPO to leave some of its creditors behind, including the firm's pension scheme.
The evidence was collected and published by the House of Commons work and pensions committee. Chair Frank Field said:
I have confidence that the Pension Protection Fund (PPF), working with the scheme trustees, will act in the best interests of the pensioners, but it’s clear that the former owners passed up a better deal for pension scheme members in favour of lining their own pockets.
What is a pre-pack?
A pre-pack puts a insolvency practitioner, otherwise known as an administrator, in charge of the business for a split-second to effect a sale of specific assets of a business.
Assets are transferred into a NewCo which is then sold until a new owner, which pays the insolvency practitioner for the assets. Liabilities are left behind in the original company
The insolvency practitioner, then distributes the money paid back to creditors of the firm. Secured creditors, in this case one of which was Rutland, get paid first.
If there is no money left once the secured creditors, other creditors, such as in this case the firm's pension scheme, will receive only a tiny part that is specifically set aside in law for them. In the case of Bernard Matthews, less than 1p in every pound was return to fund the pension scheme.
With the firm's pension fund in lifeboat the PPF, members will see pay outs capped and increased annually at a lower inflation metric than scheme particulars would have otherwise have dictated.
Two letters were received by the committee, answering questions about events that led up to the pre-pack sale of Bernard Matthews.
The first came from the firm's new owners, BPO (otherwise known as Boparan Private Office), which detailed it was prepared to hand the pension scheme a lifeline. It said:
"In July 2016, during the PwC sale process, Boparan made an offer to buy the whole share capital of Bernard Matthews (which included all assets and liabilities including pension liabilities) but this offer was rejected by the owner Rutland Partners.
The offer was sufficient to repay the bank [which had debt ranking ahead of Rutland] and by acquiring the share capital, Boparan would have taken on the pension liability, but Rutland Partners would not have received full repayment of their loan notes and interest and we assume this latter point is why the offer was rejected.
Another came from Deloitte, which stressed as an officer of the court it was mandated to distribute proceeds as dictated by law. In other words, it had no power to block amounts being back to secured creditors and use them to repay the pension deficit.
Rutland Partners has not responded to requests for comment from City A.M..
September 2013 - Rutland Partners, a private equity firm, acquires control of Bernard Matthews by means of a secured loan of £25m
June/July 2016 – Two separate offers (one by BPO and the other by an undisclosed bidder) were made to purchase Bernard Matthews as part of sales process run by PwC – these were both rejected by Rutland Partners as these would have involved a write-off of most of Rutland’s secured loans.
August 2016 – BPO approaches Rutland with an offer to acquire the business through a pre-pack administration, representing a “significant uplift” in the amount recoverable by Rutland Partners.
25 August 2016 – BPO formally offers to purchase the Bernard Matthews business and assets
29 August 2016 – Rutland Partners engage Deloitte to assist in progressing the sale to completion.
8 September 2016 – Deloitte asks the Trustees and other secured creditors for their consent to the sale and the release of their respective securities.
13 September 2016 – Trustees respond to Deloitte to say that they do not consent to the release of the scheme’s security.
20 September 2016 – Court order is made allowing the sale of BM free of security. Deloitte is appointed as Administrators of Bernard Matthews – a few hours later the transaction is completed, with the purchaser acquiring the business and assets out of administration for £87.5m. The pre-pack administration of Bernard Matthews is an insolvency event triggering the entry of the pension scheme into PPF assessment.
3 October 2016 – The administrator Deloitte publishes its proposals for the distribution of the £87.5m sale proceeds to creditors, including a full £46.6m repayment of bank debt and up to £39m to Rutland Partners in respect of its secured loans. The pension scheme by contrast receives nothing in respect of its £17.5m secured debt claim and stands to recover less than 1p in the pound in respect of its liabilities from the remaining proceeds.
January 2017 – The Pension Protection Fund is reported to have lodged a claim to recover the full section 75 debt in respect of the pension scheme’s ‘buyout’ deficit, estimated at up to £75m.