High Court Strengthens The Pension Regulator's Powers But Threatens UK Rescue Culture

Bloom and others v Pensions Regulator (Nortel, Re) [2010] EWHC 3010 (Ch) (10 December 2010)

The High Court recently considered the UK Pension Regulator's (the Regulator) powers against companies that have gone into administration or liquidation. In a landmark decision, the Court held that the cost of complying with a financial support direction issued by the Regulator would be an expense of the administration or liquidation, which in turn means that such costs are payable in priority to unsecured creditors, floating charge holders or indeed the administrator's own remuneration.

The multi-billion pound dispute involved the Regulator and the two estates of Lehman Brothers and Nortel Networks groups. Between the insolvents, there are significant employer debts owed to the pension schemes (£2.1 billion in the case of Nortel) and so the Pensions Regulator intervened to exercise its anti-avoidance powers as provided under the Pensions Act 2004 (PA 2004).

Under that legislation, the Regulator can issue "financial support directions" (FSD) if an employer participating in an occupational pension scheme is "insufficiently resourced". The financial support direction can require another group company – not necessarily participating in the pension scheme itself – to provide Regulator-approved financial support to further the obligations owed to its pension scheme. If the company fails to put forward satisfactory support mechanisms in response to an FSD, the Regulator can then issue a...