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Nortel Administration: Companies Court Application

10 December 2010

LONDON, 10 December 2010

The legal issue

This case concerns whether the administrators or liquidators of a company can disregard a Financial Support Direction ("FSD") or Contribution Notice ("CN") issued by the Pensions Regulator against companies in administration or liquidation. 

An FSD or a CN is able to be issued against any person connected with the sponsoring employer of a defined benefit occupational pension scheme in certain circumstances which are prescribed under the Pensions Act 2004. Specifically, it can be issued against corporate groups one of whose members is the sponsoring employer of such a scheme, where the scheme is underfunded and the sponsoring employer itself is unable to cure that underfunding.

The background

The Nortel pension Scheme has in excess of 40,000 members and a deficit estimated at over £2bn.  The Pensions Regulator determined in June this year that an FSD should be issued against several companies in the Nortel group in respect of the Scheme, of which the sponsoring employer was Nortel Networks UK Limited.

The administrators of those Group companies subsequently brought this application before the Court.  They argued that neither an FSD nor a CN was enforceable once a company had placed itself in administration or liquidation. 

The public interest

If FSDs and CNs cannot operate against companies in administration or liquidation, then a larger number of pension schemes will enter the Government "lifeboat", the Pension Protection Fund, (“PPF”).  The PPF provides compensation to pensioners, although often not at a level equivalent to the benefits they would have received if their pension scheme had stayed "afloat".

The PPF is chiefly funded by means of a levy raised on all UK defined benefit occupational pension schemes; it follows that the greater the calls on the PPF, the greater the burden on pension scheme employers generally across the country.  They pick up the bill, so to speak.

The judgment

The Court has now found that an FSD and/or CN is an expense of the administration or liquidation, and accordingly must be complied with.

David Davies, Chairman of the Board of the Trustee of the Nortel Scheme said:

"The Trustee is very pleased at this decision. The difficulty arose out of the fact that the legislation was silent on this point.  Although the matter is likely to go to appeal, we hope and believe that the Judge's decision will be upheld.  Our case is that if an insolvent company can ignore FSDs and CNs altogether, it will frustrate the Pension Regulator's function in protecting pensions, and arguably do so where it is needed most, when a company goes under. The Trustee believes that this judgment strengthens its position in seeking to make recoveries for the Scheme from Nortel companies worldwide.”

Hogan Lovells acted for the Trustee of the Scheme:

Crispin Rapinet (Insolvency Litigation)

Angela Dimsdale Gill (Head of Pension Fund Litigation)

Joe Bannister (Insolvency)


Notes to editors

Hogan Lovells’ Pensions Litigation Practice is widely recognised by the independent legal directories as being a clear leader in this field, a position it has occupied for several years.

Over the past year the practice has handled some of the most significant cases in the market including acting in relation to the IMG Pension Plan case as well as the Pilots' National Pension Fund (PNPF) litigation.  Our clients come from all areas of the pensions market and include leading independent trustees, trustees of some of the largest schemes in the country, sponsoring employers in all sectors, including manufacturing, media and financial, bodies involved in the regulation of pensions schemes, members of schemes and pensions professionals (including actuaries and solicitors) and their insurers.

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