Today the Supreme Court determined that Financial Support Directions or FSDs imposed against UK companies in relation to defined benefit pension schemes will rank as an unsecured creditor in UK administrations.
FSDs can be issued by the Pensions Regulator to ensure companies as part of a group provide financial support to their defined benefit pension schemes.
Today’s decision overturns two prior rulings of both the High Court and the Court of Appeal and concludes three years of litigation on this legal point. This has been a source of great debate amongst both insolvency and pension professionals as the legislation was unclear on how liabilities under a FSD would rank if it was not in place at the start of the insolvency.
Jonathon Land, partner at PwC and adviser to the trustees of the Nortel Networks UK Pension Trust Ltd, said:
"This ruling determines once and for all that FSDs will rank alongside other unsecured creditors in UK administrations. This is the fairest result and after three years of litigation UK pension schemes and insolvency practitioners will be thankful they finally have clarity on this issue.
“This is also a great result for members of pension schemes and in some cases will make a real difference to their pension in the case of an administration. Furthermore, insolvency practitioners will now also be able to more accurately estimate the financial impact of FSDs in UK administrations and ultimately make quicker distributions to all creditors.”
The European administrators of Nortel have brought this issue to the Supreme Court (along with the administrators of Lehman Brothers) following the crystallisation of a $3.1bn claim from the UK pension scheme on insolvency. PwC has been acting as the financial adviser to the Nortel UK Pension Scheme since 2009.
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