GLOBAL - A US Court of Appeals has upheld a decision by one of the country’s District Courts, ruling that the UK’s Pension Protection Fund (PPF) should not be allowed to access funds of several Nortel subsidiaries undergoing bankruptcy proceedings.
The case - regarding a £2.1bn (€2.5bn) deficit left in the Nortel Networks UK Pension Plan (NNUKPP) following the company’s collapse in 2009 - was criticised by the presiding justice as “focusing on some of the technical differences governing bankruptcy” rather than the impact it might have on scheme members.
In their joint ruling, justices Sloviter, Scirica and Smith of the court’s third circuit found that, because the PPF was funded by private companies - via levy payments made by the UK’s defined benefit schemes - it was not eligible for ‘police power exception’.
Under the exception, state bodies are allowed to continue with regulatory intervention, even once a company has filed for bankruptcy.
The exception has in the past been extended to the PPF’s US counterpart, the Pension Benefit Guaranty Corporation.
The court found that the UK’s Pensions Regulator (TPR) was a governmental unit for the purposes of determining an exemption, but said that this was not a consideration.
“TPR is not a party to the pending bankruptcy proceedings,” it said. “Unlike the trustee and PPF, it did not file a claim and therefore cannot assert the police power exception.”
The ruling also criticised all parties involved - the trustees of NNUKPP, the PPF, Nortel Networks, its Caribbean and Latin American subsidiary and even the committee of its unsecured creditors - arguing that continuing the dispute rather than entering mediation would lead to a “wasteful depletion” of the assets they were seeking to access.
The justices said they were concerned all parties were focused too closely on details of bankruptcy law without considering the individuals who would “ultimately be affected by the decisions” being made.
It further noted that the largest claimants were pension funds representing their members, who were “undoubtedly dependent” now, or would soon be, on the payments in question.
“They are the Pawns in the moves being made by the Knights and the Rooks,” the ruling said.
The dispute is the latest in a number of court battles, with cases fought in Canada, as well as in UK courts, over access to company assets and the validity and preferential treatment granted to Financial Support Directions (FSD).
TPR last year won an appeal in UK courts, upholding its right to access assets remaining from Lehman Brothers and Nortel’s collapse before unsecured creditors were allowed, as it had issued the FSDs.
Both TPR and the PPF were unable to comment on the ruling at the time of publication.