Part 3: The Pensions Regulator Contribution notices where avoidance of employer debt etc Section 103: Grounds for issuing a section 38 contribution notice S38D: Section 38 contribution notice issued by reference to employer insolvency test: defence
New section 38D provides a defence in respect of new section 38C.
	Subsection (1) of the new section 38D applies where the Regulator believes that the conditions of new section 38C have been met, and a warning notice in respect of a contribution notice under section 38 of the Pensions Act 2004 has been issued, wholly or partly because in its opinion the employer insolvency test has been met.
	Subsections (2) and (3) provide that where a defence has been raised, a contribution notice must not be issued if the Regulator is satisfied that certain conditions under this section are met.
	Subsections (4) to (6) set out the conditions A to C for the defence: this provides that the person who wishes to raise the defence must satisfy the Regulator that he or she has met conditions A and C, and where relevant condition B. Those conditions provide for a three-step process.
	Condition A is that, before becoming a party to the act or failure, the person gave due consideration to the extent to which, if a debt under section 75(4) of the Pensions Act 1995 were to fall due from the employer to the scheme either (i) immediately after the act or failure, or (ii) where the failure might continue for a period of time, at any time within that period, the act or failure to act might materially reduce the amount of the debt that could be recovered from the employer when it so fell due.
	Condition B is that where, as a result of the consideration as outlined under condition A, the person took all reasonable steps to eliminate or minimise the potential for the act or failure to act to have such an effect.
	Condition C is that, having regard to all circumstances prevailing at the time of the act or at the time when the failure to act first occurred, it was reasonable for the person to conclude that, if a debt under section 75(4) of the Pensions Act 1995 were to fall due from the employer to the scheme either (i) immediately after the act or failure, or (ii) where the failure might continue for a period of time, at any time within that period, the act or failure to act would not materially reduce the amount of that debt that could be recovered from the employer when the debt fell due.
	Subsection (7) sets out condition D of the defence which provides that the person who wishes to raise the defence must satisfy the Regulator that immediately after the relevant time, the value of the assets of the scheme equalled or was more than the amount of the liabilities of the scheme immediately after the relevant time.
	Subsection (8) gives further detail about what will be required in order for a person to be regarded as having given the consideration referred to in condition A. This is that the person must have made enquiries and done the other acts that a reasonably diligent person would have made or done in the circumstances.
	Subsection (9) sets out that the person’s assessment of whether or not an act or failure to act might materially reduce the amount of debt that could be recovered from the employer in a hypothetical insolvency situation, is to be judged by reference to the circumstances prevailing at that time and of which that person was aware or ought reasonably to have been aware at the time of the act or the time when the failure to act first occurred. This includes acts or failures to act which have occurred before that time and expectations at that time of other acts of failures to act occurring.
	Subsection (10) provides that, for the purposes of conditions A, C and D, any debt due from the employer under section 75 of the Pensions Act 1995 (whether before or after the relevant time) is to be disregarded.
	Subsections (11) to (14) set out how the defence applies in relation to a series of acts or failures to act.
	Subsection (11) provides that the person must show either that the three conditions are met in relation to each of the acts or failures in the series, or that in relation to each of those acts or failures, it formed part of a group of acts or failures (as selected by the person raising the defence) in relation to which the matters set out in subsection (12) are shown.
	Subsection (12) sets out the matters to be shown in order to meet conditions A, B and C in relation to a group of acts. They are that before becoming party to the first act or failure in the group, the person must show that condition A is met in relation to the overall effect of the group; condition B must be met in relation to that overall effect, and condition C must be met in relation to each of the acts or failures in the group.
	Subsection (13) provides that if at any time the person considers that condition C will not be met in relation to any particular act or failure to act in the group, the previous acts or failures in the group are to be regarded as a separate group for the purposes of subsection (11) of this section, and the person may then select another group consisting of the particular act or failure concerned, and any subsequent act or failure, in relation to which the person shows the matters mentioned in subsection (12) of new inserted section 38D.
	Subsection (14) states that if the person is unable to show in the case of each of the acts or failures to act in the series that the matters set out in subsection (11)(a) or (11)(b) are met, but does show in the case of some of them that those matters are met, the acts or failures to act within paragraph (b) are not to count for the purposes of new section 38C as acts or failures to act in the series.
	Subsection (15) provides the definition of terms used in this section, including "the relevant time" and "a warning notice". It also sets out that a reference to a party to an act or failure to act includes a reference to a person who knowingly assists in the act or failure.