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The Court of Appeal (CoA) has dismissed an appeal by Nortel and Lehman Brothers International (Europe) against the Pensions Regulator over obligations to members of their respective pension schemes.
The CoA confirmed the first instance decision that said where a financial support direction (FSD) is issued to a company after it goes into insolvency the cost of complying with the direction is an expense and therefore must be paid prior to any distribution to the company’s unsecured creditors.
Lord Justices Laws, Lloyd, and Rimer were unanimous in the ruling, accepting that
the FSD provisions in the Pensions Act 2004 apply to target companies in an insolvency process.
The court rejected submissions by the companies’ administrators that the obligation placed upon companies receiving an FSD is qualified in some way when the target is in formal insolvency.
It also dismissed arguments from lawyers for Nortel’s administrators, led by 3-4 South Square’s William Trower QC, that the obligation created by the FSD was incapable of constituting a contingent claim and therefore was not provable.
The keenly awaited decision will have ramifications for how the Pensions Regulator takes action against insolvent companies. It will also have implications for how companies structure their pension schemes.
The case is now expected to move up to the Supreme Court.
The line up:
Appellants in appeal: 3-4 South Square’s William Trower QC, Wilberforce Chambers’ Andrew Mold and 3-4 South Square’s Tom Smith instructed by Herbert Smith partner Stephen Gale for the Nortel administrators
Appellants in appeal: 3-4 South Square’s Robin Dicker QC, Wilberforce Chambers’ Paul Newman QC and 3-4 South Square’s Daniel Bayfield instructed by Linklaters partner Ewan Clarke for the Lehman administrators
Respondent in both appeals: 11 Stone Buildings’ Raquel Agnello QC, Wilberforce Chambers’ Jonathan Hilliard and 11 Stone Buildings’ Thomas Robinson instructed directly for the Pensions Regulator
Respondents in appeal: 3-4 South Square’s Richard Sheldon QC, Felicity Toube QC and Wilberforce Chambers’ Michael Tennet QC instructed by Hogan Lovells partner Joe Bannister for Nortel Networks UK Pension Trust and for the Board of the Pension Protection Fund
Respondents in appeal: 3-4 South Square’s Gabriel Moss QC, Outer Temple’s Nicolas Stallworthy QC and 3-4 South Square’s David Allison instructed by Travers Smith partner Anna Gray for the Lehman pension fund trustees and for the Board of the Pension Protection Fund
Respondents in appeal: 3-4 South Square’s Barry Isaacs QC instructed by Weil Gotshal & Manges associate William Needham for Lehman Brothers Holdings and Neuberger Berman Europe