Nortel and Lehman financial support directions – an update

23 August 2012

The High Court decision in Nortel and Lehman [2010] EWHC 3010 (Ch) in December 2010 was widely seen by insolvency and restructuring practitioners as having far reaching consequences for the “rescue culture”.

The now familiar facts involved the issue of a Financial Support Direction (FSD) by the Pensions Regulator (Regulator) on numerous Nortel and Lehman companies following the commencement of administration proceedings. Ambiguity in the insolvency legislation on the priority that should be provided to FSDs issued in such circumstances (and subsequent contribution notices (CNs) issued for failing to provide financial support under an FSD) led to the parties involved seeking clarification from the High Court on whether such an FSD or CN was a provable debt within the insolvency legislation (ranking pari passu with all other unsecured claims), an expense of the administration (giving the pension scheme “super priority” over all other unsecured creditors and floating charge holders) or not covered at all and falling into a “black hole” as a claim that need only be met after all creditors are paid out in full.