Lehman Brothers pension scheme payout agreed

MEMBERS of the Lehman Brothers Pension Scheme will receive their benefits in full after a £184m settlement was reached in the six-year legal battle that followed the firm’s insolvency.

The Pensions Regulator (TPR) announced today that a settlement had been agreed that would keep the 2,500-member scheme out of the Pension Protection Fund (PPF).

This comes after the watchdog’s determinations panel issued a financial support directive against six solvent Lehmans group companies in 2010, ordering them to pay plug the scheme’s deficits.

TPR chief executive Stephen Soper said the £184m settlement sum was the largest secured by the regulator using its anti-avoidance powers.

He said: “This is a pleasing and appropriate settlement for the 2,466 members in the Lehman Brothers Pension scheme, and shows we will not hesitate to pursue regulatory action to protect members’ benefits and PPF levy payers where we believe it is appropriate.”

Soper said there was a growing need for the watchdog to step in, in this way, to secure benefits and protect the PPF.

“This case demonstrates that the regulator’s anti-avoidance powers can be used effectively, even in highly complex international insolvency situations,” he added.

The directove was subject to numerous legal challenges. In 2010 the six firms targeted by the directives tried unsuccessfully to get the panel’s decision overturned by the Upper Tribunal.

The trustees of the scheme also went to the Upper Tribunal and successfully argued for the directive to be extended to 38 group companies.

The Court of Appeal upheld this decision in 2013, confirming that trustees could apply to extend a directive and that the regulator’s two-year time limit to issue a direction did not apply in these cases.

Details of the settlement remain confidential, but the joint administrators of Lehman Brothers International (Europe) (LBIE) said “significant financial contributions” had been made by other group companies.

The case was also subject to court hearings to establish the status of a directive against insolvent companies, and the amount of money the regulator could seek to recover.

The High Court and Court of Appeal ruled that directives effectively had ‘super priority’ and ranked ahead of most other creditors.

The Supreme Court overturned this decision last year, finding the FSD to be a ‘provable debt’ which would rank alongside other unsecured debt. But last September a High Court judge ruled that TPR could issue multiple contribution notices that exceeded the scheme’s section 75 debt at the time of insolvency, which was approximately £119m.

This paved the way for the settlement announced today, which recovers the full deficit on a buyout basis.

Trustee chairman Peter Gamester said the outcome was good news for members and thanked them their patience.

He said: “It has been made possible by the underlying financial strength of Lehman Brothers in the UK, and the successful administration of LBIE and other UK companies.”

Joint administrator of LBIE and PwC partner Tony Lomas said: “The conclusion of this significant pension scheme deficit issue is another milestone on the path to resolving the administration of LBIE.

“The agreement benefits LBIE’s creditors by securing significant contributions to the cost of the settlement from other Lehman group companies, and alleviates concerns for pension scheme members about the provision of their pension benefits.”

Related reading