Mergers and acquisitions - time limits in pension schedules

The recent Court of Appeal decision in the case of Rosedale (JW) Investments Ltd v British Steel plc emphasizes the need to comply carefully with time limits in sale agreement pension schedules, particularly in relation to valuation issues.

The pension schedule in question provided, amongst other things, that within 6 months of completion of the sale, a surplus in one pension scheme could be set off against a deficit in another.

Six months after completion, the actuaries had still not established whether the schemes were in surplus or in deficit and the purchaser indicated that in its view the offsetting provision no longer applied.

The purchaser's argument was upheld at first instance and the vendors appealed. The Court of Appeal dismissed the appeal and held that although the words in the pension schedule were not clear, at the time of the agreement the parties envisaged a timetable under which deficits were to be agreed by completion with a further six months for the offsetting exercise. They could not have intended that the process of agreeing offsets could continue indefinitely as this would create commercial uncertainty.

For further information, please contact Mark Grant by e-mail at mark.grant@cms-cmck.com or by telephone on +44 (0)20 7367 2325.