PWC ADMINISTRATORS for Lehman Brothers are in the Supreme Court today to decide the future on how the collapsed bank’s defined benefit pension scheme liabilities should be paid.
In a case which will dramatically change the insolvency landscape, PwC administrators are in court arguing that pension payments should no longer enjoy the luxury of receiving priority treatment over other creditors in the event of a collapse.
Currently, defined benefit pension payments are paid ahead of unsecured creditors such as HM Revenue & Customers and suppliers because they are considered an “expense of an administration”.
The three day hearing is due to determine where these types of claims, known as Financial Support Directions (FSDs), will rank in terms of payment if a company collapses. To date the High Court and the Court of Appeal has ruled that they are an expense of an administration.
The Supreme Court could overturn the previous rulings and find that FSDs should be paid as an unsecured creditor, in many cases receiving just a fraction of what they are owed, or after them, where they are likely to receive nothing. If this were to be the case the UK could see pension schemes end up with a large shortfall and take actions to protect themselves.
PwC administrators to Lehman Brothers and Ernst & Young administrators, for collapsed communications company Nortel Network, have joined forces to try and overturn the previous court decisions.
However, Nortel Networks UK Pension Trust, which was advised by PwC partner Jonathon Land, and other schemes are trying to ensure pensions remain a preferential creditor.
Land said: “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.”
Steve Absolom and Will Wright from KPMG Restructuring have been appointed joint administrators to City Motor Holdings and associated companies
Partners from Johnston Carmichael have been appointed as joint administrators to Axon Well Interventions Products UK
Begbies Traynor have been appointed administrators of William Anelay Ltd, York, one of Britain’s longest-established construction and heritage restoration companies
Smith & Williamson has been appointed administrators of charity 4Children