The Court of Appeal in England has unanimously upheld a first instance decision that a Financial Support Direction (FSD) issued by the Pensions Regulator to an entity after it has commenced insolvency proceedings will rank as an expense of the administration, therefore affording it superpriority over floating charge holders and other unsecured creditors. This decision has significant implications for lenders to groups with UK defined benefit pension plans if any of their security is taken as a floating charge.
In a response to the Court of Appeal decision, the Pensions Regulator has said it welcomes the clarity offered by the decision but has stressed that it recognises its obligation to act reasonably and have regard to those directly affected by its powers, when exercising its discretion. It acknowledges the “importance of the UK having an effective restructuring and rescue process” and states it has “no intention of frustrating its proper workings.”
Nevertheless, commentators have expressed concern about the impact this decision will have on the UK’s rescue culture at a time of strained economic circumstances. It is expected that the administrators will appeal the decision to the Supreme Court.