UK/CANADA - The UK Pensions Regulator (TPR) has issued a warning notice setting out the case for a Financial Support Direction (FSD) against Nortel Networks and its group of companies, that could require it to contribute up to £2.1bn to the UK pension plan. However, Nortel is arguing the action is in breach of an order issued by the Canadian courts.
In January 2009, Nortel Networks applied for and obtained protection under the Companies Creditors Arrangement Act in Canada which prevents legal claims against the firm and instead allows it to focus on a restructuring process. US subsidiaries of Nortel entered into Chapter 11 proceedings for the same reason.
However, in a report from Ernst & Young, acting as court monitor, revealed TPR had issued a warning notice in January 2010 in relation to the Nortel Networks UK (NNUK) Pension Plan, which could lead affiliates of NNUK - including the Nortel Networks Corporation (NNC) and Nortel Networks Limited (NNL) - to become liable for “approximately £2.1bn toward the deficit in the pension plan”.
Claims already filed by the trustees of the Nortel scheme and the Pension Protection Fund (PPF), under the claims procedure, in September 2009 argued that NNL had provided a guarantee in 2006 to support NNUK’s commitment to make past service deficit contributions of £495.25m, but these were never made. NNL had also provided a second guarantee in 2007, which is triggered by an insolvency event and is limited to a maximum of $150m.
The report said TPR had warned Nortel in September 2009 that it was considering issuing a FSD warning notice, which could then trigger a Contribution Notice (CN). However, the company responded to TPR by arguing the Canadian courts had issued a stay of proceedings in relation to any claims.
TPR nonetheless issued the warning notice on 11 January 2010 and requested written representations from Nortel by 1 March 2010 to its determinations panel, to allow it to make a decision on the need for an FSD.
However, Ernst & Young said Nortel had written to TPR earlier this month to inform them that the notice is in “direct contravention of the stay of proceedings” granted by the Canadian court.
Ernst & Young, acting at The Court Monitor, has filed a motion asking the court to grant an order stating, among other things, that any proceedings by TPR will be considered “null and void and shall be given no force or effect” without the court’s approval.
In a statement, a spokesman from Nortel said: “The UK Pensions Regulator is attempting to impose proceedings under UK law that the Monitor and the Canadian Debtors believe is stayed per the Canadian Court’s Initial Order. The Monitor is asking the Court to declare that the Initial Order stays the commencement of these proceedings and to authorise and direct the Monitor and Canadian Debtors to refrain from participating in any such proceedings. Any claims the UK Pensions Regulator has should be addressed through the court-approved claims process.”
However, a spokeswoman for TPR added: “We have been working closely with the PPF, the Nortel Networks Pension Plan trustees and others to secure the best possible outcome for pension scheme members.
“We have now taken further action and issued a warning notice setting out the case for a Financial Support Direction (FSD) against one or more of the Nortel group of companies.
“Interested parties will have the opportunity to make representations by 1 March 2010 to the Determinations Panel, which will then decide if an FSD should be issued. If granted financial support will have to be put in place,” she added.
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