Nortel loses £2.1bn pension pot battle

Networking vendor's creditors must foot bill for pension shortfalls

Creditors of insolvent networking vendor Nortel have been ordered by the High Court to stump up £2.1bn to cover shortfalls in the company's pension pot.

The vendor lost a High Court challenge against the UK Pensions Regulator on Friday, which claimed Nortel's creditors were obliged to prop up the firm's pension scheme.

Judge Michael Briggs said the ruling means that when a Financial Support Direction (FSD) is issued against a bankrupt company, the cost of complying should be considered an insolvency expense.

He said: "Parliament has legislated to create financial obligations applicable to and payable by company in an insolvency process."

However, he added that the ruling could be appealed against because it could be "potentially unfair to the target's creditors".

In a press statement, the UK Pensions Regulator said it welcomed the ruling. It said: "Our statutory objectives require us to protect pension scheme members and the Pension Protection Fund.

"Where schemes are left with inadequate financial support, the regulator engages with all who might have a responsibility to support the scheme to ensure, where possible and reasonable, that the interests of scheme members are protected."

John Frances, technical director of insolvency trade body R3, said the ruling highlights the conflict between insolvency and pension law.

He said: "Promoting outstanding pension debts to super-priority status after the insolvency means that returns to unsecured and preferential creditors could be wiped out.

"Under this scenario, business rescue procedures make less sense and creditors have less certainty when leading in the first place."