UK/CANADA - The UK's Pensions Regulator has issued a Financial Support Direction against companies in the Canada-based Nortel grou,p requiring them to provide support for the UK scheme, which had a £2.1bn (US$3.1bn) shortfall on a buyout basis.
The Pensions Regulator's Determinations Panel found that it would be reasonable to impose the requirements of an FSD on the target companies after the employer of the Nortel Networks UK Pension Plan was found to be "insufficiently resourced".
The FSD would require those companies within the group to provide financial support for the scheme. The employer, Nortel Networks UK Limited entered administration in January 2009, together with several other entities worldwide.
Under UK pension law, the FSD requires the target companies to provide financial support up to £2.1bn - the shortfall on the section 75 buyout basis.
TPR executive director for delivery June Mulroy said: "The panel's decision is obviously welcome. It makes clear that companies within the Nortel group benefited from both the activities of Nortel Networks UK - and from the failure by the controlling Canadian companies to allow the UK company to repair the sizeable pension deficit.
"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."
The reasons behind the FSD
The regulator's determination notice, sets out that, from about 1991 the Nortel Group operated increasingly as a single entity and the distinction between corporate legal entities was largely ignored.
NNUK was effectively controlled by the Canadian parent entities - Nortel Networks Corporation (NNC) and Nortel Networks Limited (NNL).
The determinations panel found the Canadian parent entities' control over NNUK's financial position included whether, and in what sum, it contributed to the pension plan.
It said, for some 12 years prior to 2002, the Nortel group benefited by paying little or no contributions to the scheme. The group also benefited from the controlling parent companies' failure to adequately address the deficit from 2002 onwards.
The panel agreed with the regulator's evidence that Nortel group companies derived benefit from NNUK's research and development and sales and marketing activities, for which NNUK was not adequately compensated.
And it said the Nortel group further benefited from a growing interest-free loan drawn against NNUK.
This balance came about at the behest of the Canadian parent. NNUK effectively had no choice as to the making of the loan or the terms. At its peak in 2007 the amount of the loan reached £467m.
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