The Determinations Panel gave its reasons for imposing financial support directions (FSDs) on six Lehman Brothers companies on 29 September 2009. SNR Denton represented 22 of the 44 companies targeted for FSDs. The Determinations Panel accepted our submission that it would not be reasonable to impose an FSD on any of the companies we represented because of the Pensions Regulator's failure to particularise its case against them.
Prior to its collapse in 2008, Lehman Brothers UK companies operated a service company, LBL, which employed all UK employees and sponsored its defined benefit pension scheme. The pension scheme had a section 75 deficit of £148 million on 1 January 2007. The Pensions Regulator issued Warning Notices seeking FSDs against 73 Lehman Brothers companies between May and July 2010. The FSDs would require these companies to provide funding to the pension scheme.
Under legislation, the Regulator had two years from the date of the Lehman Brothers administration on 14 September 2008 to obtain an FSD. A number of procedural issues arose because the warning notices were issued close to the time limit for imposing FSDs. Initially, the companies were given only three weeks to prepare their defence. Following an application for judicial review, this was extended but issues remained as to whether the companies had been given adequate time, as it was clear the FSDs had to be issued by 13 September. Whilst the Warning Notices set out the case against specific targets, they failed to indicate why the Regulator felt it was reasonable to impose FSDs on many of the companies. There were issues over disclosure of material by the Regulators and whether the Trustees of the pension scheme were, effectively, acting as a second prosecutor in filing a reply to the Warning Notices filling in gaps in the Regulator's case at the same time the companies would be filing their defences.
The Determinations Panel's decision
There was an oral hearing before the Determinations Panel. At the date of the hearing, the Regulator reduced the list of target companies from 73 to 44. FSDs were imposed on the parent holding company, LBHI, three UK operating companies and two further parent companies of LBL. Based on the evidence, the Determinations Panel concluded it was reasonable to impose FSDs on these companies. As already mentioned, no FSDs were imposed on any other companies because of the Regulator's failure to set out a case against them.
Four of the six companies on whom FSDs were imposed are insolvent. There is an issue as to whether it is possible to impose an FSD on an insolvent company and, if so, where the FSD ranks among the creditors of the insolvent company. This arises because an FSD only creates a debt on the target company if it fails to comply with the FSD. This would be a debt arising after the date of the insolvency. An application for directions on this point has been issued and is likely to be heard later this year.
There is a right of appeal against the Determination Panel's decision to the Upper Tribunal. The deadline for any appeal is 27 October 2010. An appeal is by way of rehearing of the matter. It remains to be seen if the targets on whom the FSDs were imposed or the Trustees of the pension scheme will appeal.