By Ian Pollock
BBC News personal finance reporter
The list of schemes asking to be rescued gets longer every week
The Pension Protection Fund (PPF) has taken on 40 insolvent pension schemes in less than a year.
It opened for business last April to rescue pension funds which have been left with holes in their finances by insolvent employers.
Since then, the requests for help have been coming in at the rate of about one a week.
Last Friday, the pension scheme of AP Hydraulics, the well-known manufacturer of car brake parts based in Leamington Spa, became the latest to apply to the PPF to be bailed out.
The company's move into administration last month came as something of a shock.
It had been trading profitably.
But a requirement to start making higher pension contributions next month, amounting to £2m a year, would have drained it of all its cash and made it unable to pay any suppliers or staff.
"It was pretty obvious to me that a company so small would not be able to make that payment," said Dennis Reed, a trustee of the pension scheme.
"In fact, if the company had not called in the administrators, the trustees would have done, as we could see the company couldn't make the payments," he added.
Along with its sister company Aptec Technologies, based in County Durham, it is thought to be the first company apparently trading solvently that was tipped into insolvency by its pension black hole.
Bad news, good news
There is some good news for the 2,000 members of the AP Hydraulics pension scheme, including pensioners and former employees who have yet to retire.
The administrator of the company, Matthew Hammond of accountants PWC, is confident he can sell the business.
So far, he has received more than 40 expressions of interest and he has been spending his time showing prospective buyers around the company and asking them to make firm bids.
"I'm very hopeful we can sell the business as a going concern. We need another month at it before we can conclude," he said.
The sale price will not raise anything close to the amount of money needed to cover the outstanding pension fund liability.
But unusually for an insolvent firm, AP Hydraulics did not owe any money to its banks or other lenders, and owed only £1m to various trade creditors.
So the pension fund is the largest single creditor, and by a long way.
As the hole in the pension fund has been estimated at about £50m (on what is known as a "buy-out" basis), then the scheme should receive 98% of any proceeds from the company's sale.
AP Hydraulics is a shadow of its former self.
Brake assembly line at AP Hydraulics (formerly Lockheed) 1947. Photo: Leamington library and AP Hydraulics
Once the company employed 7,000 workers in Leamington alone and it was part of a much larger international group.
Now it employs just 200 staff at its Tachbrook Road works in the town.
Last year, its annual turnover stood at just £15m with profits at about £500,000.
In fact, the directors had been trying to sell the firm themselves.
But would-be buyers had taken one look at the pension fund liability and shied away.
As the company has now been shorn of its pension fund problem, it should be more attractive to a new owner.
According to Dennis Reed, the firm has good prospects: "The company has a lot of new business coming in, it is starting to grow and we are thinking of taking on more staff in 2007."
Firms like Land Rover, LDV vans, London Taxis International and Morgan cars all use its brake parts, including calipers and hoses.
These major customers have been very supportive, according to Matthew Hammond, helping to stabilise its trading position.
As these brake parts are such critical devices, Hammond is hopeful a trade buyer will emerge from within the car industry.
Back at the PPF
While Matthew Hammond is busy trying to sell the AP Hydraulics business, the PPF is about to decide if it should try to rescue its pension scheme.
The PPF will ask two straightforward questions.
Can the scheme be rescued, perhaps because a buyer of the insolvent employer is willing to take on the pension scheme too?
And are the assets of the pension scheme still high enough to make payments that are at least equivalent to the safety net level offered by the PPF?
If the answer to both questions is no, then the scheme will go into what has been dubbed the "holding pen", along with the 40 schemes the PPF has already decided to take on.
Among them have been the pension schemes of MG Rover, Sheffield Forgemasters, Wiggins Group, Moorland Poultry and Tomkinsons Carpets.
If the PPF accepts the AP Hydraulics scheme for assessment, that will mean a thorough assessment of its finances.
PPF spokesman Paul Reynolds said this would mirror the insolvency process at the firm. "We will identify all scheme members - there will be a lot of data cleaning. We will also make sure there has been no fraudulent activity."
That process will last at least 12 months, so no scheme has been fully absorbed into the PPF. As a result, it has yet to take on formal responsibility for paying any current and future pensioners.
So for the time being, the scheme trustees stay in their job, paying out pensions to pensioners, although anyone who retires from the insolvent schemes now will only get 90% of their expected pension - the same as the PPF's safety-net level.
In due course, though, as the PPF takes on full responsibilty for schemes that have gone bust, it will grow into one of the biggest private sector pension providers in the country, responsible for paying out to tens of thousands of current and prospective pensioners.