FSD /Insolvency Court Ruling – Further Information

Following our announcement about the FSD/Insolvency Court Ruling delivered on December 10^th 2010 we have received many questions from members asking us to clarify what the ruling means in terms of their future pension benefits.

First, we want to reassure all members that, whatever happens, you will continue to be entitled to at least the benefits determined by PPF rules, both now and in the future.

Improving those benefits beyond PPF levels will be driven solely by how successful your Trustees are in recovering monies from the various global Nortel insolvency proceedings. If we manage to recover at least £700M then we will have the opportunity to go to external insurers and attempt to purchase better-than-PPF-level benefits. In order to purchase full Plan benefits for members we would need to recover approximately £2,100M.

We, in conjunction with the PPF, have lodged a claim against the Plan’s sponsoring employer, Nortel Networks UK Limited (NNUK), for the full £2,100M (this is referred to as the “Full Claim” below). It is important to understand that the December 10^th ruling does not directly impact the status of the Full Claim against NNUK in any way since the ruling relates only to claims arising from the Pensions Regulator’s FSD determination against twenty-one Nortel EMEA companies other than NNUK (EMEA Claim). The status of the Full Claim against NNUK remains that of a ‘normal unsecured creditor’.

The December 10^th ruling arose from court action instigated by Ernst & Young (E&Y) acting in their capacity as administrators for the twenty-one Nortel EMEA companies. E&Y asked the court to rule that the EMEA Claim had almost no status whatsoever and ranked below that of a normal unsecured creditor. As we now know, the court rejected the E&Y position and decided that the EMEA Claim was to be treated as an ‘expense of the administration’, thus having priority over almost all other creditors.

This is great news because it means that we have the opportunity to recover monies directly from other EMEA companies in addition to NNUK. However there are two cautionary points to keep in mind:

· E&Y may decide to appeal the ruling and have until January 10^th 2011 to do this. We cannot and should not speculate on what the Appeal Court might decide and there is always the possibility of a further appeal to the Supreme Court.

· The Pensions Regulator has yet to decide how much of the Full Claim should be directed at the 21 Nortel EMEA companies. There is a duty on the Pensions Regulator to act ‘reasonably’ when making this decision, and have regard to the claims of other creditors of those companies.

Although the ruling is a welcome development there is still a long way to go and we hope that members will understand that it would be entirely inappropriate to speculate at this time on how it might affect members’ benefits going forward.

Finally, many of you will be aware that the Pensions Regulator’s FSD determination included a further four Nortel companies, all based in North America. The December 10^th ruling does not apply to these companies and so we will continue to progress our claims in Canada and the US separately to those in EMEA.

We will continue to keep members advised of progress.