The UK Nortel Pension Scheme has retrieved enough assets from the insolvency of its communications giant parent to buy out benefits at a level above that guaranteed by the Pension Protection Fund.
Nortel entered insolvency in 2009. Since then, the scheme, the PPF and the Pensions Regulator had been caught up in years of what one court called "scorched earth litigation" between creditors of the company.
The UK scheme was the largest single creditor to the parent company, and in October 2016 reached a turning point, agreeing with other creditors to share residual assets, held in a 'lockbox', on a modified pro-rata basis.
That meant the UK scheme was entitled to a share of the international group's assets, rather than just the assets of the UK sponsor. Judges opened the $7bn (£4.9bn) lockbox in May last year.
This is one fewer scheme the PPF will have to absorb and shows that there can still be good news stories for members of pension schemes
Angela Dimsdale Gill, Hogan Lovells
In 2009 the Nortel scheme had a buyout deficit of £2.1bn. Total recoveries are now likely to total £1.2bn, with about £550m to be spent on benefits above the level guaranteed by the PPF.
"Our total recovery... almost guarantees that we will have sufficient assets to fulfil our dream of being able to buy benefits for our members greater than those which would have been provided by the PPF and proceed to buyout with our chosen insurance partner(s)," said David Davies, chair of the trustees. "We have reached the beginning of the end."
He thanked advisers for their work on the landmark case, which has been said to set a positive precedent for UK regulators being able to export their powers, and to the PPF, "who stuck by us and went the extra mile in an effort to secure better terms all round".
“The trustees should be very proud of their achievements and this excellent result," said Jonathon Land, head of PwC’s pensions credit advisory practice and adviser to Nortel’s UK pension trustees.
"They could easily have stepped back when the group entered insolvency, but instead were determined to have an equivalent seat at the table to other stakeholders and secure a better outcome for the schemes’ members," he said.
Angela Dimsdale Gill, head of Hogan Lovells' pension litigation practice and lead counsel for the trustee, hailed "groundbreaking judicial decisions" and the trustees' inventiveness as being crucial to the positive outcome.
"This is one fewer scheme the PPF will have to absorb and shows that there can still be good news stories for members of pension schemes," she added.
