The US Court has approved a bankruptcy settlement under which a US-listed parent company is liable for the buy-out deficits in its UK subsidiary's pension schemes. Key to the court's considerations was the issue of Financial Support Directions (FSDs) by the UK Pensions Regulator against the US parent company.
The court decided that:
- FSDs do not violate the Chapter 11 protection against creditors' claims;
- it is reasonable to consider FSDs when valuing scheme claims and deciding on settlements between creditors and bankrupt companies;
- the buy-out deficit value is the correct way of valuing claims from schemes where serious concerns over scheme funding predate the start of bankruptcy proceedings. This is so even where a statutory buy-out debt has not arisen.
As the decision involves the approval of a settlement, there remains a large question mark about whether overseas courts will enforce FSDs.
Sea Containers Ltd - Chapter 11 Bankruptcy Proceedings