UK - The Pensions Regulator is appealing a court decision to stop its attempts to seek £2.1bn (US$3.2bn) from Nortel Networks on behalf of the struggling UK pension scheme.
The watchdog said it was "surprised" by the decisions of the US and Canadian courts at the end of February (Global Pensions; March 1, 2010).
It said it has filed a motion for leave to appeal in Canada where the regulator is a party to the case.
It said it believed that the regulator's financial support direction process has been "misinterpreted" as a judicial process which creates a new claim.
The trustees of the Nortel scheme and the PPF have also filed a leave to appeal in the US.
The regulator said it believes an FSD is appropriate in this case given the deficit of the UK pension scheme of some £2.1bn and other factors in the case.
It said the FSD would allow the trustees of the Nortel Networks UK Pension Plan, or the Pension Protection Fund on their behalf, to claim as creditors in the insolvencies of other members of the Nortel Group.
The regulator believes other members of the group benefited from the operations of Nortel Networks UK Ltd, and the FSD allows the trustees and PPF to continue to claim financial support for the pension scheme.
It said, without such support, there is a greater chance the scheme will enter the PPF, in which case members' benefits will be reduced to PPF levels.
The trustees and PPF have participated in the insolvency process of Nortel's Canadian and US companies in accordance with Canadian and US rules, and submitted their claims by the deadline of September 30, 2009.
The FSD process provides the trustees, PPF, courts (in the UK and overseas), and those supervising Nortel insolvencies, with a determination relating to financial support in respect of pension deficiencies.
The TPR said this is a UK regulatory process and is wholly separate from the bankruptcy procedure in Canada. The FSD process is not an enforcement procedure in any way designed to operate outside the scope of insolvency processes.
BACKGROUND TO THE RULINGS
In January 2009, Nortel Networks Corporation and several subsidiary companies were placed into various creditor protection or administration procedures around the world.
This included administration in the UK; the Companies' Creditors Arrangement Act process in Canada; and the Chapter 11 process in the US.
Each insolvency process imposed a moratorium or "stay" on legal proceedings and on actions against property of the Nortel Group. The purpose behind this is to ensure creditors make their claims within the insolvency process in question, rather than by e.g. bailiffs executing against a company's property.
In the Ontario Superior Court of Justice Judge Geoff Morawetz has declared that the UK FSD process breaches the "stay" and ordered that any outcome of it will be null and void in the Canadian insolvency process. It is unusual for a court to declare the actions of a regulator outside its jurisdiction null and void. We await the court's reasoned judgment and we are currently unaware when it will be released.
In the US Bankruptcy Court for the District of Delaware Judge Kevin Gross has made an order against the trustees and PPF declaring that their participation in the regulator's proceedings (in respect of Nortel US entities involved in the Chapter 11 process) would breach the stay. The trustees and PPF have filed a leave to appeal.
BACKGROUND TO THE FSD
The Canadian and US processes called for all creditors, including overseas creditors, to submit claims by September 30, 2009. Before the deadline, the trustees of the Nortel Networks UK Pension Plan and the PPF jointly filed contingent claims for the estimated £2.1bn deficit in the UK Pension Plan. A third claim for a part of the deficit was also made based on guarantees given to the UK Pension Plan by Nortel Networks UK's Canadian parent Nortel Networks Limited.
The contingent claims will be made certain and quantified by processes undertaken by both the Pensions Regulator and the regulator's determinations panel. This panel will, if appropriate, issue a FSD against Nortel companies which it considers should help support the UK Pension Plan. This may be because of the benefit they have received from UK employees, benefit from other UK activities, or for other reasons. This is a fundamental part of the UK regulatory process and falls under the regulator's functions under UK pensions law.
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