The Pensions Regulator's Financial Support Direction (FSD) case against various companies in the Lehman Brothers group has settled, with the companies agreeing to provide sufficient funding for the full buy-out of the benefits in the Lehman Brothers pension scheme. Although this matter has ended in agreement, it produced along the way a number of legal decisions which have helped clarify the extent of the Regulator's powers to enforce financial support for pension schemes. Those decisions put the Regulator in a strong position to negotiate a settlement. This is good news both for the scheme members and for the PPF (which should not now have to take on responsibility for the scheme).

The settlement marks the conclusion of nearly four years of dispute between the parties as to the extent of the Regulator's powers to impose FSDs. In September 2010 the Regulator's Determinations Panel issued a warning notice against six Lehman Brothers companies confirming that it intended issuing an FSD. This was challenged both by the six companies and by the scheme trustees (who argued that a further 38 group companies should be included in the FSD).     

Important points to come out of the various court decisions include:

  • FSDs issued after the commencement of insolvency proceedings will usually rank as provable debts equally with other unsecured creditors; and
  • the Regulator can issue FSDs against a number of targets which may in total have value to the scheme of more than the maximum buy-out debt (although in practice, recovery would be limited to 100 per cent of the debt).

One major issue which has not been resolved by this case is the extent of the Regulator's powers of enforcement overseas. This issue was raised but not decided in the Sea Containers case (which also settled) but could still be a live issue in the ongoing proceedings relating to the Nortel pension scheme.

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