A recent overruling by the Supreme Court has revoked the priority status of pension schemes issued with a Financial Support Direction (FSD) or Contribution Notice (CN) by the Pensions Regulator, following an insolvency event. Whilst the decision largely affects companies operating within England and Wales, Scottish Courts are expected to be guided by the ruling.

The 2011 decision

Previous decisions of both the High Court and Court of Appeal afforded a special 'super priority' status to pension schemes that were the subject of an FSD or CN. This ‘super priority’ status granted preferential creditor status (and protection) to pension schemes during the insolvency process – a position that would normally only be assigned to administrators for their fees.

The new ruling

Following the Supreme Court's ruling, FSDs and CNs will no longer be treated as a priority. Instead they will be reclassified as ‘provable debt’ – and will rank alongside general unsecured claims during insolvency procedures.

The Supreme Court has stated that much of the reasoning behind its decision lies within specific provisions, relating to ‘provable debt’, within the Insolvency Rules 1986. In Scotland, however, companies are governed by the provisions of the Insolvency (Scotland) Rules 1986 and, although expected to be directed by this ruling, can proceed upon a very different basis.