The High Court has decided that financial support directions can be issued against insolvent companies as well as solvent ones.
The administrators of 20 insolvent companies in the Lehman Brothers and Nortel groups had argued that the Pensions Regulator’s Determinations Panel had no legal power to determine that it would be reasonable to issue FSDs against these companies. The High Court disagreed and decided:
According to a recent judgment in the English High Court, Financial Support Directions ("FSDs") issued by the Pensions Regulator ("the Regulator") against companies in administration are to be treated as expenses of the administration. This means that they are to rank ahead of preferential and unsecured creditors and, indeed, perhaps ahead of the remuneration of the administrators themselves.
The Determinations Panel gave its reasons for imposing financial support directions (FSDs) on six Lehman Brothers companies on 29 September 2009. SNR Denton represented 22 of the 44 companies targeted for FSDs. The Determinations Panel accepted our submission that it would not be reasonable to impose an FSD on any of the companies we represented because of the Pensions Regulator's failure to particularise its case against them.
Background
Summary. The Pensions Regulator (the Regulator) has issued a statement on regulated apportionment arrangements (RAA) and employer insolvency (the statement).
On 17 September, the Pension Regulator's Determinations Panel announced that it had issued a determination that six companies within the Lehman Brothers group (including the group's main operating companies in the UK as well as the US parent Lehman Brothers Holding Inc.) should provide financial support to the Lehman Brothers Pension Scheme. This followed a hearing on 8-9 September 2010.
The Pensions Regulator (TPR) has issued a statement on Regulated Apportionment Arrangements (RAAs) and employer insolvency.
Employers of multi-employer schemes can use a number of mechanisms under the Employer Debt Regulations 2005 to manage a debt triggered under section 75 of the Pensions Act 1995. Broadly, RAAs can be used in situations where a scheme has entered into a Pension Protection Fund (PPF) assessment period, or is likely to enter into such an assessment period. TPR must approve an RAA.
A prominent aspect of the most recent wave of restructuring is the significant role often played by defined-benefited (DB) pension liabilities.
On 8 July, the Pensions Regulator’s Determinations Panel published a determination to issue a financial support direction against 25 companies in the Nortel group in Canada, the US, Europe and Africa.
Why has the Financial Support Direction (FSD) been issued?
In our September 2009 Pensions update we reported on proposals to make changes to the employer debt regime aimed at assisting corporate restructurings. The final regulations have now been published and come into force on 6 April 2010. Under these provisions, where there is a corporate restructuring and one employer’s assets and pension liabilities are transferred to another, then as long as the prescribed steps (set out below) are followed, no statutory employer debt will arise. Employers relying on an easement will not be expected to seek clearance from the Pensions Regulator.