Britain's pensions watchdog served a financial support direction (FSD) against 25 companies in the collapsed Nortel group in Canada, the US, Europe and Africa yesterday as it tried to help plug a £2.1bn black hole in the group's UK pension scheme.
The move by the Pensions Regulator adds weight to ongoing legal actions by the trustees of the scheme which, in conjunction with the Pension Protection Fund, has filed claims in the US and Canadian courts in a bid to secure their position in the queue of creditors in both jurisdictions.
Nortel's bonds have staged a remarkable recovery since it collapsed last year, amid hopes that unsecured creditors would enjoy a significant recovery from the sale of the group's various businesses. When Nortel sought protection from creditors the bonds were trading at just 10 cents to the dollar. They have now reached more than 70 cents because nearly $4bn has been accumulated from the sale of various Nortel businesses.
The regulator said that in the 12 years prior to 2002, the Nortel group benefited by paying little or no contributions into the pension scheme, and further benefited from the controlling parent companies' failure adequately to address the funding deficit from 2002 onwards.
Nortel presents a significant challenge to the protection fund, which was set up to ensure that employees of bankrupt companies still received the pensions they were promised. The scale of the deficit would present a serious cost to the existing schemes which fund the PPF.
June Mulroy, the Pensions Regulator's executive for delivery, said: "The FSD enables the scheme to have a voice in the insolvency proceedings of the target companies. The FSD is a UK regulatory process and is not an attempt to enforce outside of the Canadian or US insolvency processes.
"It provides certainty over the size of the pension debt for the courts and those supervising the Nortel insolvencies. We will continue to strive for the best result for the 42,000 members of the Nortel Networks UK Pension Plan and to limit calls on the Pension Protection Fund."
Jonathon Land, business recovery services partner at PricewaterhouseCoopers, who advised Nortel's pension fund trustees throughout the two-year case, said the move by the regulator could prove significant in the trustees' fight for a share of Nortel's money.
"The pensions regulator has made the right decision under the circumstances, particularly given the size of Nortel's pension deficit," he added.
"Following hot on the heels of its first contributions notice to Belgium-based Michel Van De Wiele, the regulator has sent a powerful sign that it is not afraid to pursue companies globally to protect the interests of UK pension scheme members.
"This is a clear message to international groups that they need to support UK pension schemes."Reuse content