This site uses cookies; by continuing to use our site you agree to our use of cookies. More details in our privacy policy. Close

What conclusions can we draw from the Lehman Brothers pension case?

Marcus Laughton, lawyer at The Pensions Regulator, examines some of the outcomes of the long-running Lehman Brothers pension saga

Marcus Laughton

The long-running Financial Support Direction (FSD) proceedings in the Lehman Brothers case ended in a global settlement which took effect on 19 August.

It is expected that the deal will provide enough cash (£184m) for scheme members to enjoy full ‘buy-out’ benefits, and the scheme will not have to enter the Pension Protection Fund.

The various target parties also agreed to withdraw an appeal to the Court of Appeal in relation to the ‘Storm Funding’ proceedings, ensuring that the first instance decision of the High Court on this matter remains the current law.

The initial FSD proceedings arose shortly after Lehman Brothers Limited (the sponsor of the pension scheme) and other members of the UK group entered administration in September 2008.

The various parties (regulator, trustees, PPF and nearly 40 targets including the US parent company Lehman Brothers Holdings Inc) have been battling it out since a Warning Notice – based on evidence obtained from the regulator’s investigations – was issued in May 2010.

The numerous hearings before various panels, courts and tribunals over the years reached double figures recently and have, helpfully, clarified a fair chunk of the law relating to the regulator’s powers.

What follows is an attempt to distil some of the more important principles from the lengthy proceedings.

Staying power

The regulator stated in its recent section 89 report that it will act to protect members’ interests when it considers it appropriate to act. The four years of litigation against a consortium of lawyers acting for nearly 40 targets suggests that the regulatory body is not afraid of the battles an international insolvency brings in its wake.

Insolvent targets

The long march through the High Court, Court of Appeal and Supreme Court between November 2010 and May 2013 ended with the Supreme Court judgment that made it clear that FSDs are effective against insolvent targets, and rank as provable debts, providing clarity to the UK’s restructuring and rescue practitioners.


The High Court judgment in the ‘Storm Funding’ case – one of the examples of satellite litigation that the FSD case threw up – holds that the regulator is not confined to arguing that a crystallised section 75 debt is a ‘cap’ for sums sought on behalf of the trustees where there are multiple targets in one of the regulator’s actions.

In the Lehmans case, the deficit in the scheme had risen by approximately £55m since the day before the group entered insolvency proceedings in September 2008 and the date of the settlement.

The regulator and the Lehman Brothers trustees argued that this fact should be taken into consideration by the judge when deciding if the section 75 debt was to be interpreted as a historic measurement or a ceiling on the regulator’s ambition. The fact that the targets collectively agreed to pay full buy-out sums to the trustees before withdrawing their Court of Appeal proceedings suggests that the financial bar for making payments in support of pension schemes has been raised significantly.

Role of the trustees in proceedings

The Court of Appeal upheld an Upper Tribunal ruling that trustees of schemes are correctly defined as ‘Directly Affected Persons’ under the Pensions Act 2004. This means they may be represented in proceedings initiated by the regulator and beyond.

The Lehmans targets had argued that trustees merely duplicated work done in preparing for cases by the regulator. The courts found that trustees of pension schemes had a very real interest in being represented and making representations, and that while they often had a community of interest with the regulator, their position was not reduced to being merely duplicative of its efforts.


Another argument rejected by the Court of Appeal was one raised after the Determinations Panel decided not to issue FSDs against a number of the targets on the Warning Notice.

The lawyers for those targets argued that the Upper Tribunal was ‘timed out’ from coming to a different decision (and thus issuing FSDs to these targets) because of a two year limitation period for The Pensions Regulator to act set out in the Pensions Act 2004. The Court of Appeal decided that this time limit did not apply where, as here, the Upper Tribunal was reviewing a decision to issue FSDs which had been originally made within the two year time limit – even if that time limit had expired by the time the Upper Tribunal came to make its decision.

The regulator fully supports the outcome of this long-running case, which demonstrates its commitment to initiating and pursuing regulatory action over a long period of time and at all judicial levels, and clarifies a number of legal points around the scope of its powers.

Posted on 11th September 2014 by



blog comments powered by Disqus