The Pensions Regulator’s (TPR) determination to issue a Financial Support Direction (FSD) to raise £2.1bn from Nortel on behalf of the UK pension scheme and the Pension Protection Fund (PPF) appears to show the TPR’s determination to protect the interest of UK pension scheme members regardless of a parent company’s domiciliation.
TPR published the decision after it found that the employer of the Nortel Networks UK Pension Plan was “insufficiently resourced”.

The FSD, issued against 25 companies in the Nortel group in Canada, the US, Europe and Africa, will require these companies to provide financial support for the scheme, following Nortel Networks UK Limited’s (NNUK) entering administration in January 2009.

Under UK pension law, the FSD requires the target companies to provide financial support up to £2.1bn. TPR’s Determinations Panel (DP) found that it would be reasonable to impose these requirements on the companies, and found that the Canadian parent entities’ control over NNUK’s financial position included whether, and in what sum, it contributed to the pension plan. It found that for 12 years prior to 2002, the Nortel group paid little or no contributions to the scheme, and failed to adequately address the deficit from 2002 onwards.

TPR’s executive director for deliver, 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 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.”

She added that the Regulator will strive to limit calls on the Pension Protection Fund (PPF).

David Saunders, partner at Sackers & Partners LLP said the long-awaited Nortel judgement demonstrates a “cross-jurisdictional tug-of-war”.

“Notwithstanding the decisions of the Canadian and US courts that the issue of warning notices breached the stay under respective US and Canadian insolvency legislation, the targets for those FSD still include the US and Canadian parent companies,. It would seem that the Determinations Panel is determined to carry out its role under UK legislation regardless. The Regulator is basically saying that this is not an attempt to circumvent US/Canadian insolvency processes, but intended to provide certainty over the amount of pension debt.”

Business recovery services partner at PricewaterhouseCoopers LLP (PwC), Jonathan Land, who advised Nortel’s pension fund trustees throughout the two-year case, added: “The Pensions Regulator has made the right decision under the circumstances, particularly given the size of Nortel’s pension deficit. Following hot on the heels of its first contributions notice to Belgium-based Michel Van De Wiele, the regulator has sent a powerful sign that it is not afraid to pursue companies globally to protect the interests of UK pension scheme members. This is a clear message to international groups that they need to support UK pension schemes.”

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