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Financial INDUSTRY Update

29 July 2011



For additional information, please contact:

Martin Bartlam
+44 20 7862 4777

Nortel & Lehman Brothers v The Pensions Regulator


The UK Court of Appeal is currently considering the case of Nortel & Lehman Brothers v The Pensions Regulator [2010] 999 PBLR (052);    [2010] EWHC 3010, a case which has the potential to become a pivotal interpretation of UK law for both insolvency practitioners and lenders.  The case hinges on the question of where a company's pensioners rank amongst creditors in the event of a bankruptcy.  The Pensions Regulator has sought to prove that, under UK law, pension funds will always rank first, ahead of banks, bondholders and unsecured creditors.  In December 2010 this view was upheld by the High Court in a ruling against which the administrators acting for the estates of Lehman Brothers and Nortel Networks now appeal. 

Although the financial stakes in this case are high (Nortel's pension deficit is estimated at £2.1bn and Lehman's at £130m), the monetary element of this decision is dwarfed by the potential impact of the case which many commentators believe may lead to a significant reluctance of banks to lend to companies with pensions deficits and a resultant increase in the cost of credit.  If the High Court ruling is upheld, it is likely that this case will proceed all the way to the Supreme Court because the stakes involved are likely to mean that the administrators will not leave the ruling unchallenged.  We will continue to monitor this case and publish an alert as soon as a judgment is delivered.