UK - Two overseas firms have teamed up to challenge the powers of the UK's pension regulator to require they provide financial support to their UK pension funds.
Lehman Brothers Holdings' European unit and Canada-based Nortel Networks Corp appeared in court today in London to challenge the law on the regulator's use of a financial support direction (FSD).
The two firms have both been on the receiving end of the regulator's moral hazard powers.
Two weeks ago, the regulator's determinations panel ruled six subsidiaries in the Lehman Brothers group should provide financial support to the pension scheme and issued an FSD (Global Pensions; September 20, 2010).
The panel is expected to give its reasoning for the decision any day.
In July the regulator chased companies in the Nortel group to provide support for the UK scheme, which had a £2.1bn ($3.3bn) shortfall on a buyout basis. (Global Pensions; July 8, 2010)
Earlier this year, courts in the US and Canada ruled the TPR and the UK's Pension Protection Fund could not force Nortel to pay for the UK scheme. The TPR and PPF fought the decision but the court of appeals in Ontario upheld the ruling because both firms are in the midst of bankruptcy proceedings. (Global Pensions; June 30, 2010)
Lawyers in the UK have also questioned the decision because both Nortel and Lehman Brothers due to ongoing insolvency proceedings.
Allen & Overy restructuring team partner Jennifer Marshall said technically a claim can only be made if a debt exists on the insolvency date - but in the Lehman case the regulator is imposing a debt on the subsidiaries after administration.
A spokesman from The Pensions Regulator said: "We cannot comment on an ongoing case or satellite litigation."
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