Companies on the brink of bankruptcy warned of AE obligations

BUSINESSES facing insolvency still have to meet their auto-enrolment (AE) obligations where they continue to employ staff, sister publication Professional Pensions reports.

Kate Lloyd, partner at law firm Gateley, raised concern that insolvency practitioners (IP) who decide to keep trading the business while searching for a buyer might let AE drop down the list of their priorities.

She said: “Given the severity of the penalties that can be imposed, running into many thousands of pounds, it is something that IPs should have on their radar.

“For example, if the company hasn’t reached its staging date but does reach it once the IP is on board, it is the IP who is responsible for making sure that the auto-enrolment obligations are met and that could be something that easily slips through the net.”

Lloyd added that the IP would need to be aware of the employer contribution requirements, which may exceed their previous pension expenses.

She said: “In the example just given, the IP would have to fund from the business currently a 1% employer contribution in respect of the employees and this may be more than the pensions costs were prior to the auto-enrolment requirements applying.”

The Pensions Regulator (TPR) said it expected IPs to ensure their employer client was compliant with any duties it had under AE legislation.

A spokesman for the regulator said: “In line with our compliance and enforcement strategy, the regulator takes a risk based approach to enforcing the duties with all employers including with those undergoing insolvency.

“We aim to educate and enable employers to comply in the first instance and will work with them to get them back on track if they are experiencing difficulties.”

Hogan Lovells counsel Nicola Rondel pointed out that IPs were rarely assigned to keep a company afloat, however.

She said: “Nine times out of ten an insolvency practitioner will be appointed for the sole purpose of winding up the company or better realising assets or returns for creditors.

“In both those contexts you can see that it wouldn’t really be a priority or even something they should be thinking about doing – auto-enrolling employees – because that would run counter to the purpose for which they have been appointed.”

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