Nortel Networks and Lehman Brothers have begun its challenge against the Pensions Regulator (TPR) before Briggs J in the High Court over the latter’s ability to impose a financial support direction (FSD) against them.

In July and September 2010, TPR’s determinations panel issued FSDs against 25 companies in the Nortel group in Canada, the US, Europe and Africa, and six companies in the Lehman Brothers group, respectively.

It is expected that the administrators for the two companies will argue that liability from an FSD imposed by TPR is not a provable claim in the insolvency because the order did not exist at the time that the companies went into administration – in fact, in both cases there was a significant gap in time between the declaration of insolvency and the issue of the FSDs. Further, the element of discretion in TPR’s right to issue contribution notices (CNs) and FSDs gives rise to the argument that there is no certainty in such liability at the point of administration.

In counter-argument, TPR will argue that the liability from the FSD should be treated as an expense in the administration. In its written submission to the Court, TPR described compliance with the FSD as a ‘necessary disbursement’. If TPR is successful in its argument, then it will be ranked ahead of the existing creditors.

The High Court must now determine whether or not the liability should be treated as an expense in insolvency.