I was interested earlier this week to finally see an outcome to a long-running pensions legal case I used to cover.
On Tuesday the Supreme Court ruled in the case of Bloom and Others vs. The Pensions Regulator (TPR) and Others that a financial support direction (FSD) issued by TPR should rank as provable debt. This decision was important as it overturned earlier rulings that decided liabilities arising from an FSD counted as an expense of the administration and ranked above claims of other creditors with ‘super priority’.
The new classification of an FSD as a provable debt means it will no longer be seen as an expense of the administration and placed at the front of the queue of creditors nor as a non-provable liability and falling into a ‘black hole’ behind others in line. It will instead fall somewhere in the middle of the queue.
This is a satisfactory and fair outcome for all concerned. It will be a relief for employers sponsoring defined benefit (DB) schemes that not everything will go to the trustees on insolvency, while TPR and scheme trustees will be pleased about the security it ensures for the scheme if a company goes bust.
Indeed, TPR executive director for DB funding Stephen Soper welcomed the clarification, adding TPR made clear all along it has had “no intention of frustrating the proper workings of the administration process”. I suspect however, that perhaps deep down the watchdog secretly hoped the powers of an FSD would be held by the court as having ‘super priority’ status to prove it actually had the bite to match its bark.
Nevertheless, the ruling does still reinforce TPR’s powers under an FSD or contribution notice (CN) and its willingness to wield them – something that has been brought into question in the past – if an employer plays up when it comes to paying the scheme on insolvency.
Both schemes in question – Nortel and Lehman Brothers – are in the Pension Protection Fund (PPF) assessment period so no doubt the PPF will have watched the verdict with keen interest. Now it has to assess the implications for both schemes and any future recoveries it may make as an unsecured creditor should they be taken under its wing. Sponsors have enough on their plate over liabilities and funding levels, while the same can be said for trustees who also have assets and liabilities to balance.
The ruling has ultimately clarified the position around FSDs and CNs for both sides, simultaneously reaching a happy medium and providing insolvency practitioners with transparency on how to treat a pension scheme liability.
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