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Industry reacts to Nortel ruling 13 December 2010

Bryan Green, president of the association, said the ruling could have a damaging impact on UK-based administrators and their ability to rescue businesses. He also believes that the ruling will also have a direct impact on the Lehman administration.

He added: “This judgment represents a seismic increase in the power and influence of the Pensions Regulator (TPR) over companies that get into trouble, and it could potentially make rescuing businesses much more difficult. This decision produces uncertainty over what will happen to companies with pensions deficits that go into insolvency.

"It could put off anyone from wanting to act as administrator of a business with a pensions deficit. Parliament must get a grip on this question as a priority; there are large numbers of businesses with pensions deficits that need restructuring. The last thing they need is for this kind of uncertainty to hang over them.”

Richard Williams, head of Pinsent Masons' London restructuring practice, said: “The court has come to the far reaching conclusion that such claims will rank as an expense in the insolvency giving such claims super priority status above other creditor claims and potentially should be paid even above the fees and costs of the administration.

"This is unless the first stage (here, a financial support direction) happens prior to the formal insolvency occurring. In coming to this decision the judge made it clear that he did so only because he was bound to do so by previous cases.

"He said that this was potentially unfair to the other creditors - and effectively invited legislative change, so that such claims rank equally with other unsecured debts. He described the current position as a 'legislative mess'".

Williams added: “Of course, the case may well be appealed but potentially the rescue of a business with such a pension scheme will be much more difficult to achieve. Trustees of pension schemes may on the other hand feel much more empowered to fight for scheme members’ positions where there is a deficit in the scheme.”

John Frances, technical director at insolvency trade body R3, noted that Judge Michael Briggs said the decision could be ‘an impediment to the achievement of the objectives of the rescue culture’.

Frances added: “Promoting outstanding pension debts to super-priority status after the insolvency means that returns to unsecured and preferential creditors could be wiped out. Under this scenario business rescue procedures make less sense and creditors have less certainty when lending in the first place.

"While some pension funds may benefit, other creditors will suffer as will the value generation capacity of UK plc overall.”

 

 

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