The Pensions Regulator (the "Regulator") has published a statement to help banking, insolvency and restructuring professionals understand its approach to its Financial Support Direction ("FSD") powers in insolvency situations.
Financial support directions and insolvency: the Regulator's statement
The Pensions Regulator has today issued a Statement on its power to issue financial support directions (“FSDs”) against companies after an insolvency event has occurred. The Statement follows longstanding concerns of insolvency practitioners, which have arisen from ongoing court proceedings brought by the Lehman Brothers and Nortel administrators.
Background
The Pensions Regulator has issued a statement setting out its approach to Financial Support Directions in insolvency situations. It follows the Court of Appeal's decision in Bloom v The Pensions Regulator (Nortel) in October 2011 that a liability arising from a Financial Support Direction (FSD), or a contribution notice (CN), issued to a company in administration or liquidation will, except in very limited circumstances, amount to an expense of that administration or liquidation. As such, it will rank very highly in the payment priority order, in particular rank
- Transfers
From April 2012 it has been possible to make transfer payments from contracted-out to contracted-in pension plans. Many members have a statutory right to such a transfer (irrespective of contrary restrictions in pension plan rules). Legislation sets down a number of member safeguards that must be met. Any transfer is subject to a receiving scheme being willing to accept it. Trustees should be aware of the impact on administration and member communications.
The Pensions Regulator (the PR) is a non-departmental public body in the United Kingdom entrusted with powers designed to protect the benefits of members of work-based pension schemes. Where an employer is insufficiently resourced – a technical term meaning that it lacks sufficient assets to meet 50 per cent of the estimated debt of the pension scheme – the PR may issue a financial support direction (FSD) requiring another employer or an individual or company associated with the employer to put in place financial support for the scheme.
One exception to the otherwise far-reaching scope of the automatic stay is the “police power” exception, which permits a governmental unit to commence or continue an action or proceeding that is in furtherance of its police and regulatory powers (section 362(b)(4) of the Bankruptcy Code). In the past, bankruptcy courts have held that the “police power” exception extends to actions taken by the Pension Benefit Guaranty Corporation, the agency charged with protecting pension benefits in private-sector defined pension plans.
Where does liability under a Pensions Regulator Contribution Notice rank in an Employer's insolvency?
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The Court of Appeal decision in the Nortel case upheld the High Court ruling that FSD/CN liability is an expense of the administration and therefore ranks ahead of administrators' remuneration, floating charges and unsecured creditors. Much of the press coverage which has followed in the immediate aftermath seems to have assumed that the decision is a victory for "good" pensioners over the "bad" banks.