UK/CANADA - The UK Pensions Regulator (TPR) has appealed rulings by the Canadian courts that declared the Financial Support Direction (FSD) process initiated against Nortel Corporation breaches the legal 'stay' of further financial claims on the company.

TPR issued a warning notice last month setting out its case for an FSD against certain members of the Nortel group of companies, as being liable for approximately £2.1bn (€2.3bn) towards the deficit in the Nortel Networks UK Pension Plan. (See earlier IPE article: TPR pursues Nortel in Canada for £2.1bn pension fund bill)

However, the Ontario Superior Court of Justice ruled at the end of February that the FSD process breached the legal moratorium on claims against Nortel, and ordered that any outcome would be "null and void" in the Canadian insolvency process.

In a statement today, TPR confirmed it has filed a motion for leave to appeal the Canadian ruling as it believes the FSD process has been misinterpreted by the court as a "judicial process which creates a new claim", instead of a regulatory process that is part of the organisation's duties under UK law.

TPR stated: "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 judgement and we are currently unaware when it will be released."

In the meantime, it warned that the February rulings "do not prevent the regulator from pursuing an FSD against Nortel companies. The regulator 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".

The regulator said trustees of the Nortel Networks UK Pension Plan and the PPF have participated in the insolvency process of Nortel's Canadian and US companies, and complied with the necessary rules by filing the claim before the deadline of 30 September 2009.

But it added the FSD would allow the trustees or the PPF to claim as creditors in the insolvencies of other members of the Nortel group. TPR said it believes other members of the Nortel Group benefited from the operations of Nortel Networks UK - the sponsoring employer of the scheme - so the FSD would enable the trustees and PPF to continue to claim financial support for the pension fund.

"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," it stated.

TPR argued that the FSD is a regulatory process completely separate from the insolvency procedure in Canada, and said it would "provide the trustees, PPF and courts with a quantification of the size of the claim relating to deficiencies in the Nortel UK pension scheme".
 
Alongside the appeal, TPR confirmed that the decision on whether to issue an FSD would be made by the Determinations Panel at a hearing before 30 June 2010.

Meanwhile, in February the US Bankruptcy Court for the District of Delaware also made an order against the trustees of the UK pension plan and the Pension Protection Fund (PPF) declaring that their participation in the FSD proceedings relating to Nortel companies in Chapter 11 proceedings would breach the legal "stay".  The trustees and the PPF have also filed a leave to appeal against the ruling.

If you have any comments you would like to add to this or any other story, contact Nyree Stewart on + 44 (0)20 7261 4618 or email nyree.stewart@ipe.com

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