The Pensions Regulator has won its legal challenge with the administrators for Lehman Brothers and Nortel Networks.

In November the administrators of 20 insolvent companies launched a case to challenge The Pension Regulator’s ability to impose an order that requires them to provide financial support for underfunded pension schemes.

Justice Briggs ruled that where a financial support direction (FSD) is issued against a company after insolvency, the cost of complying with that direction is an expense and therefore must be paid before any distributions to unsecured creditors.

A statement from The Pensions Regulator welcomed the judgement: “It confirms an FSD is valid if issued after an insolvency event.

“In particular, it supports the claims of the Nortel and Lehman pension trustees in their respective administration processes. 



“More generally, this ruling clarifies the effect of an FSD on an insolvent target. However, it will not alter the regulator's approach to determining FSDs in any situation.”

Chairman of Nortel UK’s pension trustee board, 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 contributions notices (CN) 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.”

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