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Pension schemes braced for crucial Supreme Court ruling

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The Supreme Court will commence a three-day hearing today to determine where the claims of UK defined benefit schemes rank when a firm enters administration.

The case stems from the collapse of communications giant Nortel Networks, a company which went into administration in January 2009.

In July 2010, The Pensions Regulator issued Nortel with a ‘Financial Support Direction’ which required the company to provide financial support to the Nortel pension scheme worth up to £2.1bn.

Nortel has already unsuccessfully argued that it should not be required to support the pension scheme ahead of other creditors in both the High Court and the Court of Appeal.

Both courts ruled the FSD liabilities would rank as an expense in administration, meaning the FSD liability would be paid out ahead of the general pool of unsecured creditors.

PricewaterhouseCoopers partner Jonathan Land, who advises Nortel Networks’ UK pension interests, says: “The ranking of FSDs has remained a key area of contention over the past few years.

“The final ruling could have a significant impact on the ways in which pension schemes look to safeguard themselves against insolvency situations.

“The knock on impact could be far reaching, affecting insolvency practitioners and the restructuring world more widely.”

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