As you may recall from our Pensions Bulletin in February 2008, the Regulator issued two Financial Support Directions (FSDs) against Sea Containers Limited (SCL) in February 2008. This was the first example of the use of the Regulator's anti-avoidance powers in terms of the Pensions Act 2004. SCL was the Bermudan parent company of a global network of subsidiary companies. One of the subsidiaries (Sea Containers Services Limited) was the principal employer of two UK defined benefit pension schemes. The SCL group had filed for Chapter 11 bankruptcy protection in the USA in 2006.

The trustees of the two schemes were involved in ongoing negotiations with SCL and eventually reached a settlement agreement with the SCL group providing that the trustees would receive a sum representing the full section 75 buy-out costs of the schemes' liabilities. Trustees of one of the schemes had, however, previously raised concerns with the Regulator regarding the group's ability to support the scheme and the Regulator eventually issued the FSDs against SCL. Other creditors of the company, however, raised an action in the US Bankruptcy Court for the District of Delaware seeking to overturn the agreement objecting to the validity of the FSDs in Chapter 11 proceedings. The Court rejected the creditors' objections, upheld the trustees' unsecured claims on a buy-out basis and concluded that it was reasonable to calculate the Schemes' claims as though the FSDs were valid. The Court held that the FSDs did not amount to an attempt to collect a debt or assert a claim against the debtors, but that the FSDs did provide guidance as to the needs of the Schemes and therefore the pertinent considerations in valuing the Schemes' claims. In a further boost for the Regulator, the Court acknowledged that the FSDs reflected that the Regulator was fulfilling its statutory objective of ensuring that pension schemes are properly funded and maintained. It remains to be seen whether a US bankruptcy court would reach a similar decision were the parent company to be a US incorporated company, rather than a Bermudan company.