How are Contribution Notices and Financial Support Directions treated under the priority order of payments in insolvency?
Produced in partnership with Raquel Agnello QC of Erskine Chambers and Thomas Robinson of Wilberforce Chambers
How are Contribution Notices and Financial Support Directions treated under the priority order of payments in insolvency?

The following Restructuring & Insolvency guidance note Produced in partnership with Raquel Agnello QC of Erskine Chambers and Thomas Robinson of Wilberforce Chambers provides comprehensive and up to date legal information covering:

  • How are Contribution Notices and Financial Support Directions treated under the priority order of payments in insolvency?
  • The implications of Lehmans/Nortel cases
  • Background to the case
  • The decision of the first instance judge and the Court of Appeal
  • Decision of the Supreme Court
  • Subsequent cases
  • Implications
  • Legal developments
  • Brexit

The implications of Lehmans/Nortel cases

The Supreme Court decision in the case of Nortel/Lehman has clarified the status of Financial Support Directions (FSDs) issued under the Pensions Act 2004 (PA 2004) to companies in UK administration. It provides important guidance on the ranking of FSD liabilities in insolvency as well as on:

  1. the proper construction of IR 2016, SI 2016/1024, rule 14.1 (formerly IR 1986, SI 1986/1925, r 13.12(1)(b)), defining contingent debts that may be proved in an insolvency

  1. the nature of insolvency expenses, and

  1. the court's residual discretion (if any) to direct payments be made outside the statutory scheme of distributions

The decision also deals with the status of contributions notices issued under the PA 2004, s 47, which enforce compliance with FSD's. FSDs are one of the moral hazard powers available to the Pensions Regulator. For more information on these, see Practice Note: The Pensions Regulator and its power to issue a contribution notice and financial support direction.

The case, on appeal from the Court of Appeal [2011] EWCA Civ 1124, was brought by the UK administrators of various Nortel companies, as well as the UK administrators of various Lehman Brothers companies.

Both sets of administrators sought directions from the court as to whether, as administrators appointed under Sch B1 of the Insolvency Act 1986 (IA 1986), they