High Court Ruling on Treatment of FSD under Insolvency Law

 

We previously notified members aware of the above court hearing and that announcement is repeated below for the convenience of members.

 

The court hearing took place over the period November 24-30, 2010 at the Royal Courts of Justice in London. The hearing was presided over by Mr. Justice Briggs and the following parties were represented: - Trustees for the Nortel UK and Lehman Brothers pension schemes, the Pension Protection Fund, the Pensions Regulator and administrators for Lehman Brothers and Nortel EMEA entities outside UK.

 

The issue before the court was how an FSD/CN should be treated under UK insolvency law – the action was instigated by the Nortel/Lehman administrators who sought clarification since the legislation is unclear on this point.

 

The possible results were that an FSD/CN should be treated as:

  • An expense of the administration/liquidation and thus having priority over unsecured creditors;
  • A provable debt in the administration/liquidation as an unsecured creditor; or
  • A non-provable claim payable (if at all) only out of any surplus available after payment in full of all unsecured creditors

 

The court has found that an FSD/CN should be treated as an expense of the administration.

 

Following the court ruling, our chairman David Davies said: "The trustee is very pleased at this decision.

"The difficulty arose out of the fact that the legislation was silent on this point. Although the matter is likely to go to appeal, we hope and believe that the judge's decision will be upheld.

"Our case is that if an insolvent company can ignore FSDs and CNs altogether, it will frustrate The Pension Regulator's function in protecting pensions, and arguably do so where it is needed most, when a company goes under.

"The trustee believes that this judgment strengthens its position in seeking to make recoveries for the scheme from Nortel companies worldwide."

 

A press release by our legal advisers Hogan Lovells can be seen by following this link:

http://www.hoganlovells.com/newsmedia/newspubs/detail.aspx?news=1762

 

The Pensions Regulator press release can be seen by following this link:

http://www.thepensionsregulator.gov.uk/press/pn10-26.aspx

 

There has been other widespread press comment on this ruling, examples being the Financial Times and Daily Telegraph which can be seen by following these links:

 

http://www.ft.com/cms/s/0/a21797be-04aa-11e0-a99c-00144feabdc0.html#axzz17naXHddI

 

http://www.telegraph.co.uk/finance/personalfinance/pensions/8195407/Pension-ruling-catastrophic-for-companies.html

 

 

We will keep members informed of any further developments on this matter

 

_______________________________________

 

Previous Announcement – 29 September, 2010

 

We have previously referred members to a press release posted on the Pensions Regulator’s website on July 8, 2010. This stated that ‘The Pensions Regulator has published a determination to issue a Financial Support Direction (FSD) against 25 companies in the Nortel group in Canada, the US, Europe and Africa’. Over the past few weeks it has become evident that lawyers acting on behalf of the administrators of certain European (EMEA) entities have become concerned that UK insolvency law is unclear about how administrators should treat an FSD – or a subsequent Contribution Notice (CN) – in terms of its ‘ranking’ in respect of all claims made by creditors against such EMEA entities.  Note that the Plan’s former sponsor Nortel Networks UK Limited (NNUK) is not one of the 25 companies named in the FSD determination. 

 

Accordingly, EMEA administrators have now asked the Companies’ court to rule on how an FSD/CN should be treated under insolvency law. The court hearing will take place towards the end of November 2010 and the interests of Plan members will be fully represented at the hearing. We will publish a further announcement on this website when the result of the court hearing is known. 

 

Members may also be aware that an FSD determination has now been made in respect of certain companies within the Lehman Brothers group and the administrators of those companies have also applied to the Court for a similar ruling. Since the legal issues in the two cases are identical (and primarily ones of statutory construction) the Court has ordered that they will be heard together.