As you may recall, the High Court ruled in December 2010, in a case brought by the administrators of 20 insolvent companies in the Lehman and Nortel groups, that the cost of complying with a financial support direction ("FSD"), issued by the Pensions Regulator after the date of the commencement of a company's administration or liquidation, would rank as an expense of the administration or liquidation.

Introduction

For all of the legal difficulties which market participants are facing in light of the insolvency of Lehman Brothers, the insolvency is providing the Courts with the opportunity to pass judgment on many of the tricky provisions of the 1992 and 2002 versions of the ISDA Master Agreement (together the "Agreements").

In a recent high profile case brought by the administrators of 20 insolvent companies in the Lehman and Nortel groups, the High Court ruled that the cost of complying with a financial support direction (“FSD”) issued after the date of the commencement of a company’s administration or liquidation by the Pensions Regulator would rank as an expense of the administration or liquidation.

There have been so many articles written and opinions expressed on the spate of cases on the effect of how netting provisions in over-the-counter ("OTC") derivative contracts work when a counterparty becomes in default, that you would be forgiven for being confused about the current position. Now that the dust has settled (for the time being at least), this article takes stock and seeks to make matters as straightforward as possible.