May 11
Is your overseas parent taking you seriously?

We often hear sponsors and trustees moaning that their overseas parent simply does not understand UK pension issues and does not want to prioritise them.  However, there have been seen several cases that demonstrate why overseas parents may want to get more involved in the UK pension arrangements of their subsidiaries.

The first is the case of Nortel where Canadian and US courts ordered that the UK pension scheme should have an equal claim on the residual assets following the global group filing for insolvency in 2009.  It was finally announced this week that Nortel’s UK pension scheme would receive more than £1 billion as a result of the Canadian and US court ruling.  This follows the Pensions Regulator’s (“tPR”) involvement issuing a warning notice setting out the case for a Financial Support Direction in 2010.

The Nortel case follows the early successes of tPR intervening in both Lehman Brothers and Sea Containers.  Both of these cases involved the insolvencies of the wider group and therefore offer limited insight into how tPR will deal with solvent overseas parents.  However, in 2011 tPR negotiated a funding plan in respect of the Great Lakes UK Limited Pension Plan which involved support being provided from both its sponsoring employer and the US parent which was emerging from Chapter 11 as a going concern at that time.

In addition, last summer, the US parent of Halcrow worked closely with tPR and the Pension Protection Fund (“PPF”) to reach a PPF compromise agreement.  This was after the US parent’s initial proposal with respect to the UK pension arrangement had been considered by the High Court in 2015.

These cases have shown that whilst many overseas parents have no formal legal obligation to support the UK pension arrangements of their subsidiaries, the individual circumstances of each case is unique and situations exist where their input will be required.  In addition, there may be (increasingly strong) levers that tPR can use to ensure that financial support is provided by the overseas parent.  It would be pertinent for overseas parents of subsidiaries with significant UK pension arrangements to take these cases seriously and familiarise themselves with the UK regulatory environment in order to avoid any nasty surprises.

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