Financial Support Directions and Insolvency - possible leverage for pension scheme trustees?


In a recent high profile case brought by the administrators of 20 insolvent companies in the Lehman and Nortel groups, the High Court ruled that the cost of complying with a financial support direction ("FSD") issued after the date of the commencement of a company's administration or liquidation by the Pensions Regulator would rank as an expense of the administration or liquidation.

This means that FSDs (and by analogy contribution notices ("CNs")) issued by the Pensions Regulator against insolvent companies, have, in effect, been given a ‘super-priority' as against the claims of any unsecured creditors, floating charge holders and even against the remuneration of insolvency practitioners.

Mr Justice Briggs reached this conclusion after an analysis of the relevant provisions of the separate pensions and insolvency legislative regimes and the expenses principles established by a previous House of Lords case.

The Lehman and Nortel administrators will undoubtedly appeal the decision, first in the Court of Appeal and perhaps ultimately to the Supreme Court. Mr Justice Briggs notes at paragraph 150 of his judgment that “the FSD regime was almost certainly drafted by pensions experts rather than insolvency experts, and the complete failure of the [Pensions Act 2004] to make any reference to the effect of the regime upon insolvent companies suggests that issues as to priority of consequential financial obligations of a target company in an insolvency process may never have crossed the draftsman’s mind.”

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