The Pension Protection Fund (PPF), the lifeboat set to rescue BHS pensioners and possibly those of British Steel, may also have to take on the 33,000 UK pensioners of bankrupt Canadian telecoms giant Nortel Networks.
Nortel's British pensioners are one of three groups of creditors wrangling over $7.3bn (£5bn) worth of assets. The long-running battle boils down to whether Nortel’s US units have to share the money with UK and Canadian divisions. A Canadian court ruled in May last year that UK creditors should receive more than the $1.3bn requested – but that is being disputed.
Mediation is scheduled for this Thursday and Friday. If no settlement is reached, the matter is expected to go to a US court for an appeals hearing, where the outcome for UK pensioners is seen as a “gamble”.
A source said: “A court could rule that they get less than a quarter of what they have been awarded. In the event of such a ruling, there would be a shortfall of money to pay Nortel pensioners in the UK, which could put unhelpful further pressure on the PPF. The latest UK pensioner amount is £700m and if it goes into PPF, pensioners are likely to get a shortfall of what they are due to receive.”
No date has yet been set for the US hearing.
A spokesperson for the PPF, which has been monitoring the situation closely, told City A.M.: “The scheme remains in the PPF assessment period, where scheme members are protected by PPF levels of compensation.”
During this assessment phase, pensioners continue to be paid their benefits from the trust’s assets, although these benefits are capped.
There are over 800 schemes in the PPF which is currently in surplus. The state-backed fund has recently come under scrutiny for taking on BHS’ pension scheme, which is nursing a £571m deficit.
The British Steel pension scheme may also enter the PPF but is looking for ways to stay out of the lifeboat which would require a cut to workers' benefits.
Nortel Networks filed for Chapter 11 bankruptcy protection in January 2009, making it one of the largest corporate bankruptcies in Canadian history. The company’s demise came after years of problems, including the collapse of technology stock prices in 2001 and an accounting scandal that led to criminal charges against former Nortel executives. At its peak, Nortel’s value accounted for roughly a third of equity traded on the Toronto Stock Exchange.
The bankruptcy proceedings have now lasted twice as along as those of Lehman Brothers. Earlier this year City A.M. reported the drawn out process had racked up legal costs in the UK of over $700m, with professional services giant EY earning over $500m.