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Pension schemes braced for crucial Supreme Court ruling

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The Supreme Court commenced a three-day hearing on Tuesday 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, 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 argued unsuccessfully in both the High Court and the Court of Appeal that it should not be required to support the pension scheme ahead of other creditors. Both courts ruled that the FSD liabilities would rank as an expense in administration, meaning they 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.”

Syndaxi Chartered Financial Planners managing director Robert Reid says: “It seems absolutely right that, in the event of administration, payment of salary and pension payments should take priority over other creditors.”

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