Bloom & Ors v The Pensions Regulator (Nortel, Re)  EWHC 3010 (Ch) (10 December 2010)
In June 2010, the Pensions Regulator’s Determinations Panel determined that it would be reasonable to issue a Financial Support Direction (FSD) against companies in the Nortel group.
Nortel Networks UK, the principal employer of the Nortel Networks UK Pension Plan, had gone into administration in January 2009, triggering a Section 75 employer debt (the amount required to secure all members’ benefits by purchasing an annuity from an insurance company) of £2.1bn. Prior to the entire group’s collapse in January 2009, the Nortel group carried on a substantial worldwide telecommunications business.
In September 2010, the Determinations Panel also decided that it would be reasonable to issue a FSD against entities in the Lehman Brothers group of companies. The principal UK Lehman employer company was Lehman Brothers Limited. It went into administration in September 2008, crystallising a Section 75 debt in the Lehman Brothers Pension Scheme of £140m.
An FSD enables the Pensions Regulator to impose, in specified circumstances, an obligation on an employer to provide financial support to its under-funded defined benefit pension scheme. It also allows the Pensions Regulator to deal with non-compliance with that obligation by imposing a contribution notice (CN), being a specific monetary liability payable by an associated company to the trustees of the employer’s pension scheme.
To date, no FSDS have been issued to the Nortel or Lehman groups as the administrators of both groups applied to the High Court for a determination as to where the FSDs, if issued, would rank in the administration process. The trustees of each of the two pension schemes, the Pensions Regulator and the PPF were all joined into the proceedings.
The judgment of Mr Justice Briggs, handed down on 10 December 2010, appears (for the time being) to have the following implications:
- If the Pensions Regulator issues an FSD after a company goes into administration or insolvent liquidation, any subsequent liability arising in connection with that FSD (including any CN issued) will rank as an “expense” of the insolvency process. As such it will take priority over preferential creditors, floating charge holders and unsecured creditors. The judgment has no impact on the rights of fixed charge holders
- If the Regulator issues an FSD before a company goes into administration or insolvent liquidation, any subsequent liability will be a provable debt and rank only as an unsecured creditor claim and therefore equally with the trustees of the pension scheme
- If an FSD is imposed on an employer in an administration which is immediately followed by a liquidation, then a CN subsequently issued will rank as a provable debt, rather than an expense, and not have priority over the claims of unsecured creditors
We understand the decision is to be appealed and it is hoped that the judgment will be reversed by the Court of Appeal and/ or the Supreme Court. The judge himself noted that the decision was the result of a “legislative mess” and suggested that the Insolvency Service or Parliament consider a suitable amendment to the existing law.
To read the judgment for yourself go to: http://www.bailii.org/ew/cases/EWHC/Ch/2010/3010.html