The Supreme Court has thrown out a controversial ruling that handed pension holders priority over unsecured creditors when companies fail.
Lord Justice Neuberger overturned the lower court ruling from 2010 that granted trustees the power to demand lump-sum payments from administrators ahead of other lenders, apart from those backed by property assets.
The original ruling emerged from a case involving the Pensions Regulator, which sought £125m from Lehman Brothers and £2.1bn from the Canadian telecoms company Nortel to cover the pension liabilities of 43,000 workers.
"There seems no particular sense" in a pension plan's trustees "having any greater or any lesser priority than the rights of any other unsecured creditor," Lord Neuberger said.
Experts welcomed the verdict. Devi Shah, a partner at the law firm Mayer Brown, said: "This is a win for the much trumpeted rescue culture – much to the relief of employers, lenders and insolvency practitioners.
"The previous Court of Appeal decision caused considerable issues for restructuring professionals on the ground – they had to consider potentially large pension deficits when assessing the prospects of companies on the verge of insolvency, making rescue of the enterprise a risky and uncertain business.
"The banks should also hopefully be more comfortable lending after the decision, as they would have demanded more favourable terms or even refused funding if this judgment had gone the other way," she added.
Despite yesterday's ruling, so-called Financial Support Directions (FSDs), imposed against UK companies by the regulator to fund defined-benefit pension schemes, will still rank as an unsecured creditors in UK administrations.
Jonathon Land, a partner at PwC, said: "This ruling determines once and for all that FSDs will rank alongside other unsecured creditors in UK administrations. This is the fairest result and after three years of litigation UK pension schemes and insolvency practitioners will be thankful they finally have clarity on this issue."