While the row over the taxation of private equity executives rumbles on, remarkably little has been written about the role of private equity companies in the demise of final salary pension schemes.
The roll call of pension schemes which have hit the buffers, after having been taken over by private equity firms, is worryingly long – BUSM, Texon and Dexion. (Apax Partners), UEF (Prudential Ventures), UK Safety and Totectors (Alchemy Partners), Allied Steel & Wire (Candover), Samuel Jones (Rutland Trust) and UPF (Phildrew Ventures) - to name just a few.
In many instances, the incoming private equity firm piled up debt and shifted pension fund liabilities into subsidiary companies, only to pull the plug subsequently, leaving the subsidiary overwhelmed by debt and the pension scheme in deficit.
Given that many of these firms collapsed before 2005 when the Pension Protection Fund came into force, the members and pensioners of these schemes were left at the mercy of the hopelessly underfunded Financial Assistance Scheme.
While extra funding has been promised for the FAS, this scheme will still not provide benefits at the same level as the PPF. Furthermore, its failure to date to deliver promised assistance in a timely manner does little to inspire confidence in its ability to help these people in the future.
Our new Prime Minister has promised to “listen to the people” and “mend old wounds.” Perhaps he would like to start by addressing the plight of the FAS members and calling the private equity hounds to heel.
I run the BUSM pensions action group in Leicester and our situation, post venture capitalist take over has been described by Dr Ros Altmann as one of the worst in the country.
Many people had between 30 and 40 years employment and we expect most will receive little or nothing from the severely underfunded pension scheme. This has had a devastating effect on colleagues some of whom are seriously ill or have wives who are seriously ill.
USM-Texon, once Leicester’s largest and most innovative company was a major exporter of shoe machinery boasting two Queen’s awards. It was taken over by Apax in 1995 after a failed floatation.
At that time, it owned a large and valuable site near the city centre but also had £multi-million employee debts in the form of the company pension, a German pension scheme and US employee health benefits.
It was demerged in 1997 into Texon and BUSM following an optimistic report on BUSM’s survival prospects by KPMG . I understand the same KPMG team was used for Jon Moulton’s bid for Rover in 2000.
Managers say that contrary to the KPMG report, the land was never included in the BUSM assets. I certainly can’t see it in the accounts whilst the employee debts are shown.
The chief executive Dr Neil Coutts allegedly received a £1M bonus and almost immediately moved to Dexion, coincidentally another pensions disaster company.
The USM-Texon pension scheme was split in April 1999 but the pensions accounts show only current employees were transferred and only the current year’s contributions were paid in, less than £1m excluding AVC’s.
Very little money was therefore needed to bring the new scheme up to full funding and the combined USM-Texon scheme remained underfunded.
In February 2000, at the height of the IT boom, BUSM sold its key asset, the Hi Tech Crispin department by installments to Texon for about 3.5 times earnings, a surprisingly low figure. The company’s survival had depended on its cashflow.
Machinery sales fell dramatically but the company for some reason continued building a large stockpile of finished goods.
On 14th September 2000, the pension funds were transferred to the new scheme by a simple split of assets. Two weeks later, a series of coincidences. The new Minimum Funding Requirement came into effect showing a £3M deficit, the last Crispin payment was made and the banks put in Arthur Anderson as receivers.
The Crispin workers were particularly unlucky. Their pension was due to be transferred back to Texon but this took seven months, authorisation reaching the solicitors coincidentally on the very day of insolvency!
Jon Molton invested in the new Management Buy Out which bought the finished stock at half price from the receiver. Sales which had collapse, miraculously recovered attracting favourable local press comments. What a shame this happened after insolvency!
Senior managers say they were told the firm must survive 3 years. The DTI remerges firms that fail within a 2 year period and is known to investigate those failing just outside the limit.
The pensions ombudsman cannot investigate a shareholder and the DTI can only investigate on behalf of shareholders and a pension fund isn’t one.
Local MPs are well informed about BUSM and Texon. Stephen Timms granted Edward Garnier QC an enquiry but then retracted it. Patricia Hewitt also requested an enquiry. Dr Ashok Kumar who has Texon constituents, held a adjournment debate on 17th January 2006 and called for “Some serious joined-up thinking ..on these issues” but this was rejected as the “Ombudsman was investigating a case which could have a bearing and will be of interest to those who have raised concerns.” This was utter nonsense. The case related simply to a delay in transfer for an individual, it had no relevance to anyone else and Apax wasn’t even mentioned. Why it took over 3 years to come to a conclusion is beyond me.
The venture capitalists ran rings around the authorities who made no serious effort to help.
Apax claim to operate operate professionally “within a framework of uncompromising ethical integrity.” Are we a good example?
According to Wikipedia, Cohen is a philanthropist a major donor to the Labour party and Gordon Brown’s right hand man. By a magnificent irony, he is also chairman of the Commission on Unclaimed Assets, some of which may be used to compensate us. Cohen says “Our first concern must be to re-unite consumers with their money wherever possible.” We just want to be reunited with our pensions and a bit of serious philanthropy would be much appreciated.
Anyone wishing to check the company house acounts, the registration number is 3473337 and the last date is December 1998. The referenced but irrelevant Pensions Ombudsman case is N00067 completed 19th April 2006 and can be downloaded from the Pensions Ombudsman’s website.
Jon Moulton, now of Alchemy, Apax’s Tim Wright and Dr Neil Coutts were directors of the holding company in November 1999 and Ronald Cohen was Apax Chairman. Wright was also a director of Texon.
Paul Gillreport this comment
Well said.
How can it be right that private equity can use financial engineering to destroy company pensions, escape their obligations, and dump the cost onto the taxpayer through the FAS?
It would be wrong to blame the equity companies for this - they are acting entirely legally. It is a failure of regulation. It will therefore be an interesting test for our new prime-minister to see whether he has the corage to make the necessary changes. A windfall tax to cover the pensions liabilities might be a good place to start.report this comment