Nortel Case: Supreme Court ruling recognises key pensions remedies in insolvency cases - .PDF file.
The UK Supreme Court has given judgment in the Nortel and Lehman Brothers pensions cases, ruling that pensions financial support directions (FSDs) and contribution notices (CNs) rank as provable debts in an insolvency. This ensures that these statutory provisions have effect when they are most needed.
The case began three years ago in the wake of the bankruptcies of both Nortel and Lehman Brothers, which each left behind a UK pension fund with a substantial deficit. In each case, the relevant employer company could not meet that deficit, and the question for the courts was whether statutory pensions remedies — FSDs and CNs — could be used to require other companies within each group to help make good the deficit. Those other group companies were themselves insolvent, but did have assets available to make some payment on creditor claims.
The Supreme Court’s decision has now confirmed that FSDs and CNs, which are issued under the Pensions Act 2004, effectively rank as provable debts alongside other general creditors if issued against insolvent target companies. The court ruled that FSD and CN liabilities are not administration or liquidation expenses that would rank ahead of general creditors, but nor do they rank behind general creditors such that they would be unlikely ever to be paid (the option that had become known as the ‘black hole’)…
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