Life after Nortel

Eleanor Stephens spoke to Raquel Agnello QC of Erskine Chambers who believes the Pensions Regulator can breathe a sigh of relief after the Supreme Court’s decision in Nortel.

Original news

Re Nortel GMBH (in administration) and other companies Re Lehman Brothers International (Europe) (in administration) and other companies [2013] UKSC 52, [2013] All ER (D) 283 (Jul)

The Supreme Court considered whether the liability that would arise on a financial support direction (FSD) being served by the Pensions Regulator pursuant to the Pensions Act 2004 (PA 2004) on a company in administration ranked as an expense of the administration or a provable debt. The Supreme Court decided the company’s liability under the FSD regime, arising pursuant to a FSD issued after the company had gone into administration, ranked as a provable debt of the company and not an expense of the administration.

What did the Supreme Court decide?

The Supreme Court has ruled that sums claimed under an FSD served by the Pensions Regulator after a company’s entry into insolvency will rank as provable debts.

What’s the significance of this decision for office holders, companies and pension schemes?

The decisions create certainty for office holders in relation to the treatment of any such potential claims and importantly ensures FSDs do not rank as administration expenses. The Supreme Court called the answer ‘sensible and fair’ even though their decision overrules a number of cases dating back to 1887. Creditors can now prove not only for present or future debts, but also contingent debts where there was no underlying legal obligation at the date of insolvency. This substantially widens the definition of contingent debt. As a result, office holders are going to have to deal with this outside the sphere of pensions as well.

Are there other potential implications of the decisions?

As the category of provable claims widens, the category of insolvency expenses necessarily narrows. The definition of expense has been narrowed to arising out of the ‘doing’ of the administrators, or from a statute whose terms make clear that the liability falls on the administrator as part of the administration. This may also affect the issue relating to rent as an expense in administration. The Court of Appeal will have to deal with this in the upcoming appeal in relation to rent as an administration expense in the Game case (Lazari GP Ltd and another v Jervis and others [2012] EWHC 1466 (Ch)).

What are the implications of the decision for the Pensions Regulator and the Pension Protection Fund (PPF)?

The case is welcome news for the Pensions Regulator and the PPF as clearly the relevant provisions of the PA 2004 are given full effect by being provable and not disappearing down the ‘black hole’ as being neither an administration expense nor a provable claim.