UK court rules in favour of pension regulator over creditors

According to a ruling by the High Court in London, the UK Pensions Regulator's claims will now have a higher priority ahead of most creditors. The administrators of the companies had argued at a hearing last month, that the regulator did not have the power to issue financial-support directions (FSDs) against companies that were  in administration or liquidation.

According to analysts, the ruling meant banks would now have less certainty when lending to businesses in which there were final salary pension schemes as to whether they will be repaid.

They add that administrators would be discouraged from implementing rescues of businesses because super-priority for pension schemes could wipe-out any return for any other creditor.

''Parliament has legislated to create financial obligations applicable to and payable by a company in an insolvency process,'' judge Michael Briggs said in his judgment today.

Briggs said that he was bound in his decision by earlier court rulings. He added though, that an appeals court ''may find a way'' to overturn today's ruling because it is ''potentially unfair to the target's creditors.''

In September this year Lehman's unit had been asked to cover a deficit amounting to £148 million pounds by the regulator while earlier in July it sought £2.1 billion from Nortel to address the underfunding of its plan.