Begbies Traynor Group



The major international company was a preferred product supplier to the construction and building industry with operations on a global scale. It had a large-scale UK subsidiary generating revenue in excess of £200 million which was well established.

Work Undertaken

The UK subsidiary had a substantial defined benefit scheme with a deficit running into many millions of pounds.

Our Pensions Advisory team undertook a Covenant Review of the internationally renowned construction supplier to establish the Scheme Employer’s ability to fund the deficit and establish the period during which it could be repaid.

The Covenant Assessment also assessed the quality of the Group’s earnings and the long-term financial forecasts by weighing the likelihood of these earnings running into the future. It is a pre-requisite of the Pensions Regulator to understand existing and future financial capabilities and the likely outcome for creditors in the event of insolvency.


The Covenant Review concluded that the Group was sufficiently strong to meet its pension obligations based on its current balance sheet and ongoing trading prospects.

The Review also highlighted the extent to which the business was materially benefitting from trading carbon credits, as opposed to the returns from its core business.

The report indicated the need for the Trustees to take into account the future of the carbon credit market, as well as the construction industry.

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Background: The Trustees of the company’s smaller defined benefit pension scheme with assets of £16 million were seeking to establish the ability of the scheme employer to meet deficit contributions to the scheme and to what extent contingent asset support might be available recognising that the employer was a not for profit organisation and the parent company of a group structure including trading activities owned by charities none of which were participating employers.

Instructions: Our instructions were to carry out a covenant assessment of the scheme employer identifying its relationships with other group entities and the risks they posed to the scheme and opportunities they might also provide for additional cash and contingent assets in support of the scheme.

Action: We carried out a covenant assessment reviewing recent financial performance and future projections assessing the level of free cash flow available going forward and reviewed the group structure identifying for the Trustees the risks and opportunities arising from the employer’s relationship with other group members. We also identified some proposed sales of surplus assets which would give rise to significant cash receipts in excess of group requirements which therefore could be available to eliminate the current deficit in its entirety.

Follow up: Although the covenant assessment was adequate in relation to the size of the deficit we recommended the Trustees consider seeking a charge over the surplus assets pending their disposal and seeking agreement from the employer to eliminate the deficit upon realisation of the assets to be disposed of.

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