The ruling by the Supreme Court in the Nortel and Lehman versus The Pensions Regulator (TPR) case has been hailed as a landmark decision with significant consequences for lenders and the restructuring community.
But is it as important for trustees of defined benefit (DB) pension schemes and their sponsors? At first glance, it may seem to have little impact unless they are faced with the possibility of the regulator seeking to exercise its anti-avoidance powers, and this is still rare.
But, on closer analysis, it seems the impact may be both more widespread and favourable than it may first appear.
In the High Court and the Court of Appeal, the judges concluded that TPR’s Financial Support Directions (FSDs) ranked as an expense of the Nortel and Lehman administrations. This meant that the FSD would rank ahead of all creditors, including those with floating charges as well as all other unsecured creditors.
If the Supreme Court had confirmed this position, the case could have led lenders to DB scheme sponsors (and their groups) carefully reviewing their arrangements and reassessing their potential exposure.
Indeed, TPR issued a press statement following the Court of Appeal’s decision seeking to quell fears, saying it had a duty to act reasonably and to have regard to the interests of those directly affected by its powers. Despite that, the Supreme Court’s decision will have seen the banks breathe a sigh of relief.
Because the fundamental objective of trustees of DB schemes is to pay their members’ benefits when they fall due, having healthy and stable employers is vital to achieving this objective in the vast majority of situations.
So if, as a result of this decision, more employers can be healthier and more stable because of the better support from their lenders, then that is important and good news for both trustees and the employers themselves.
Peter Murphy is a partner in the pensions disputes team at Sackers