Pensions news - clarity on FSD claims against foreign companies?

Pensions news - clarity on FSD claims against foreign companies?

Claims brought by the trustees of the Nortel pension scheme and the Pension Protection Fund against the scheme's sponsor's insolvent Canadian parent company in the recent case of  Re Nortel Networks Corporation et al 2014 ONSC 6973 had some mixed success in the Ontario Superior Court of Justice.

Angela Dimsdale Gill, lead partner at Hogan Lovells, comments on the Canadian ruling that featured a claim based on the Pension Regulator's ability to issue a financial support direction (FSD) against the insolvent parent.

What particular issues were considered in this case before the Ontario Superior Court of Canada?

The Ontario court essentially decided three claims brought by the trustee of the Nortel Networks UK Pension Plan and the UK Board of the Pension Protection Fund (PPF), principally against Nortel's Canadian parent operating company (Nortel Networks UK Limited (NNL)). Those claims were:

  • claims under two guarantees granted by Nortel's parent company in Canada (in Canadian CCAA bankruptcy proceedings), and
  • a claim in respect of contingent liability to secure financial support for the Nortel UK Plan under the FSD regime under English law

What were the key conclusions the court reached on the various claims brought by the trustees and the PPF?

The court allowed one of the trustee's and the PPF's guarantee claims (in an amount of £339.75m), but disallowed the second guarantee claim and the claim in respect of the FSD. The trustee and the PPF have sought leave from the Court of Appeal for Ontario to appeal the judge's disallowance of the second guarantee claim.

What was the court's reasoning in reaching the particular conclusions it did, particularly in relation to the trustee's/PPF's claim for an amount the targets would be required to pay under the FSD regime?

The court's reasoning on the trustee's and the PPF's FSD claim addressed various issues, but the central reason why the court upheld the disallowance of that claim was because the court held that contingent liability to secure financial support for the UK plan under the FSD regime was not a liability that could be proved for in Canadian insolvency (or CCAA) proceedings. In short, the judge held that the FSD claim was 'too remote and speculative' to be a provable claim under Canadian law.

What effect do you think the findings in this case will have on how the Pensions Regulator, the PPF and the trustees of defined benefit schemes approach claims in similar circumstances in the future?

The relevance of any of the court's findings in respect of the FSD claim to future cases in other jurisdictions is highly doubtful. Claims under the FSD jurisdiction are always highly fact specific, and therefore each case is unique, as were the particular circumstances of this claim under the CCAA process in Canada.

What were the key points to learn from this case when bringing claims against insolvent companies?

One aspect of the court's decision which may provide a lesson for the future is that if regulatory proceedings had been commenced by the Pensions Regulator prior to Nortel's insolvency, the outcome may have been different. While the relevant legal tests as to what claims can be proved for in insolvency differ across jurisdictions, this case may encourage the Pensions Regulator to accelerate its investigations into cases where it believes there may be grounds for regulatory action to be pursued against foreign targets in an effort to see that any such proceedings are commenced promptly.

Interviewed by Nicola Laver.

The views expressed by our Legal Analysis interviewees are not necessarily those of the proprietor.

This article first appeared on Lexis PSL Pensions (subscribers only)

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