GLOBAL - The outlook for Kodak’s UK pension scheme is “worrying” now that parent company Eastman Kodak has filed for bankruptcy protection in the US, but guarantees give hope, law firm Eversheds says.
US company Eastman Kodak announced yesterday that it and its US subsidiaries had filed petitions for chapter 11 business reorganisation in the US Bankruptcy Court in New York.
Giles Orton, partner at UK law firm Eversheds and head of its pensions disputes team, told IPE: “It looks worrying for the UK pension scheme.”
The Kodak Pension Plan in the UK was only 55% funded at the end of 2009, with assets of £874m (€1bn) against a funding target of £1.59bn.
The trustees had agreed an action plan with the UK parent Kodak Ltd, under which it would pay between £30m and £37m every year between 2011 and 2014, after which the sum would increase until the plan was fully funded.
Orton said the Kodak Pension Plan’s main hope lied with the guarantees the trustees had apparently secured with Eastman Kodak in the US.
Eastman Kodak had also given a pension funding guarantee to Kodak Ltd and the trustees of the UK scheme, broadly stating that the plan would be fully funded by the end of 2022.
“They will be able to claim in the US chapter 11 bankruptcy, but they will probably be an unsecured creditor,” said Orton.
It is unknown whether the trustees have taken security over other assets in the US, he added.
A spokesman for the Pension Protection Fund (PPF), which provides compensation to pension scheme members in cases of insolvency or inadequate pension fund assets, said the organisation would not get involved in the matter until there was a UK insolvency at Kodak.
Law firm Hogan Lovells, which represents the Kodak Pension Trustees, declined to comment, while the Pensions Regulator said it was in touch with the UK pension trustees.
The fact the trustees previously sought guarantees in the US suggests they did not think the UK company, Kodak Ltd, was capable alone of dealing with the pension scheme deficit, Orton observed.
“If Kodak in the UK goes into insolvency, then the pension scheme will, at worst, be reliant on the PPF,” he said.
The PPF provides 100% of pension to pensioners and 90% compensation to other scheme members.
The Pensions Regulator in the UK has stepped into some international insolvencies and made Financial Support Directions (FSDs), requiring associated companies to cover pension liabilities in the UK, he said.
“The UK regulator has powers with FSDs that in theory are international, but, in practice, the US courts don’t like them,” Orton said.
Earlier this month, a US Court of Appeals upheld a district court decision that the PPF should not be allowed to access funds of several Nortel units undergoing bankruptcy proceedings.
Nortel Networks UK Pension Plan had been left with a £2.1bn deficit.