UK's Court of Appeal Upholds Landmark Pensions Ruling Backing The Pensions Regulator

(October 16, 2011) — The UK’s Court of Appeal has backed The Pensions Regulator (TPR) in the Nortel/Lehman Brothers case, ruling that pension liabilities are prioritized over other unsecured claims when companies collapse.

The appeal was brought by administrators acting for the estates of two bankrupt firms. The bank Lehman Brothers has pension scheme liabilities of £125 million, while the Canadian telecoms group Nortel Networks £2.1 billion, The Independent reported. The case may now go to the Supreme Court for a final ruling.

The judgement upheld the original high court decision made in December 2010 that the liabilities are an expense of the administration. Lehman Brothers and Nortel decided to challenge the order following the decision.

Since the ruling, a number of insolvency practitioners expressed worries that the judgment represented a major setback for the UK’s “rescue culture.”

Critics, however, warned the ruling could deter lenders to businesses and “impact on corporate Britain’s ability to sustain any sort of recovery,” according to The Independent.

Lord Justice Lloyd, one of the appeal judges, told the newspaper that “despite the oddities, anomalies and inconveniences” of the High Court decision, it was right not least because the only alternative would be that the pension scheme liabilities would “go into a black hole.” The appeal judge said: “That cannot have been the intention of Parliament.”