'No priority' for pensions when companies go bust The verdict was the result of a case brought by the administrators of the UK divisions of investment bank Lehman Brothers and Canadian telecoms group Nortel, and is viewed as a "landmark" because of its implications for other companies that go bust where pension schemes are in deficit. Nortel, the Canadian firm which collapsed in 2009, had a £2.1bn shortfall in its European scheme. The pension entitlements of more than 40,000 workers were implicated. The funding gap at the UK division of failed investment bank Lehman was far smaller at £148m. UK 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. It used a mechanism known as a "Financial Support Direction" (FSD) to do this. But the Supreme Court yesterday ruled the pensions should not be ranked above other unsecured creditors in an insolvency. The FSD, introduced in legislation in 2004, is designed to protect employees in under-funded schemes by trying to ensure companies support their pension promises. But, according to insolvency practitioners and lawyers close to the case, FSDs create uncertainty for scheme members and inadvertently increase the chance of schemes being pushed into the Pension Protection Fund, the "lifeboat" arrangement for funds of failed businesses which are in deficit. PwC, adviser to the trustees of the Nortel UK pension funds, said it was a "great result for members of pension schemes," enabling insolvency practitioners "to make quicker distributions to all creditors." Lenders to companies whose schemes are in deficit, or others seeking to restructure such firms, are expected to be reassured. Giles Frampton of R3, the insolvency trade body, said: "The Nortel decision is to be welcomed in that it appears to restore a fair balance between the rights of pension funds and other creditors in administrations."