The High Court has ruled that, in circumstances where two or more contribution notices are issued following non-compliance with a previous FSD, the Regulator can seek to recover a maximum aggregate amount which exceeds the shortfall sum payable under section 48(2) Pensions Act 2004. 

Section 47(2) empowers the Regulator to issue a contribution notice where there has been a previous failure to comply with an FSD. It can be issued to one or more of the persons to whom the direction was issued stating that the person is under a liability to pay to the trustees or manger of the scheme the sum specified in the notice (known as the shortfall sum). Section 48(2) sets out the basis on which the shortfall sum is calculated.

The ruling in Re Storm Funding Ltd (in connection with the Lehman Group) was made following an application for directions by the administrators of 14 Lehman companies. The shortfall sum was GBP 119 million. This was Lehman Brothers Limited's s.75 debt when it entered administration in September 2008. The buy-out deficit increases significantly after that date, with estimates of the buy-out debt ranging between GBP 214 million and GBP 275 million.

The High Court concluded that the statutory provisions did allow the Regulator to impose a maximum aggregate amount which was greater than the shortfall amount where two or more contribution notices were being issued. It also included that the aggregate sum recovered from more than one target under such contribution notices could exceed the shortfall sum.

In reaching this conclusion, the High Court relied heavily on the purpose of an FSD and noted that the support which the Regulator could require under an FSD was not directly linked to the amount of any s.75 debt (and could potentially be greater).

The judgment provides some clarity on the amounts which the Regulator can seek to recover where contribution notices are imposed following an earlier failure of a target to comply with and FSD. It means that the number of targets subject to the FSD will have a direct bearing on the aggregate amount which the Regulator can potentially recover following and subsequent non-compliance.