Court upholds pension appeal

PENSION scheme members cannot jump ahead of other creditors when a company or bank goes bust, the Supreme Court said yesterday, in a landmark ruling that clarifies the ranking of creditors in an insolvency.

The ruling was the result of a case brought by the administrators of the UK divisions of investment bank Lehman Brothers and Canadian telecoms company Nortel, which filed for bankruptcy protection in 2008 and 2009 respectively.

Pensions watchdog The Pensions Regulator had submitted a claim when Nortel and Lehman went into insolvency asking for pension members to be paid ahead of other claims.

But the Supreme Court said pension fund members should not be ranked above other unsecured creditors in an insolvency. The court decision clarifies the position of corporate lenders – banks – in the creditor queue.

“This decision is highly significant and a victory for common sense,” said Tony Bugg, a partner at law firm Linklater who advised the Lehman administrators. “It will be welcomed by unsecured creditors and the lending community alike, as these sorts of pension liabilities would swamp most insolvency estates leaving nothing for creditors.”

The case also provides more clarity on how to handle the pension deficits of insolvent companies. Lehman’s deficit stood at £148m when it filed for bankruptcy, and Nortel’s at £2.1bn.