| LONDON, July 24
LONDON, July 24 Pension scheme members cannot
jump ahead of other creditors when a company or bank goes bust,
the UK's highest court said on Wednesday in a landmark ruling
that clarifies the ranking of creditors in an insolvency.
The ruling was the result of a case brought by the
administrators of the UK divisions of investment bank Lehman
Brothers and Canadian telecoms company Nortel
, which filed for bankruptcy protection in 2008 and
Britain's pensions watchdog The Pensions Regulator had
submitted a claim when Nortel and Lehman went into insolvency
asking for pension members to be paid ahead of other claims.
But the Supreme Court said pension fund members should not
be ranked above other unsecured creditors in an insolvency.
The court decision clarifies the position of corporate
lenders (banks) in the creditor queue.
"The banks should ... be more comfortable lending after
today's decision, as they would have demanded more favourable
terms or even refused funding if this judgment had gone the
other way," said Devi Shah, a partner at law firm Mayer Brown.
The case also provides more clarity on how to handle the
pension deficits of insolvent companies. Lehman's deficit stood
at 148 million pounds ($227 million) when it filed for
bankruptcy, and Nortel's at 2.1 billion pounds.
Paying off sums of this magnitude first would have meant
there might not have been enough money to pay off all other
"Scheme members have the protection of the Pension
Protection Fund (PPF), which other creditors don't," Jennifer
Marshall, restructuring partner at Allen & Overy, said.
The Nortel and Lehman Brothers pension schemes are both in
the PPF, which was launched in 2005 to take over the assets and
liabilities of UK-based defined benefit pension schemes if an
employer goes bust.