Nortel has been ordered to repay £2.1 billion (US$3.2 billion) to its UK subsidiary, in order to plug a deficit in the fund for its 42,000 British pension fund members. It had contributed to the deficit by failing to pay into the scheme for 12 years, according to the regulator.
The Pensions Regulator yesterday took the unusual measure, called a Financial Support Direction, against 25 businesses in the insolvent Canadian Nortel group. The move will support legal actions from Nortel’s UK pensions trustees and the Pension Protection Fund.
The reason for the decision is that Nortel took a 12 year payment holiday from the pensions scheme until 2002, saving itself £300 million in the process, the regulator said. Without the holiday, the scheme’s funding would have been £500 million more. Nortel then failed to correct the fast-growing scheme shortfall, and had underpaid the UK division for goods and services.
The Pensions Regulator is now attempting to recoup from Nortel’s assets the £2.1 billion deficit, valued on a buyout basis, that has amassed to date. It said the money needed to be paid before the company joined up to the Pension Protection Fund and attempted to plug the deficit using that fund. Nortel entered bankruptcy last year.
The decision “makes clear that companies within the Nortel group benefited from both the activities of Nortel Networks UK — and from the failure by the controlling Canadian companies to allow the UK company to repair the sizeable pension deficit”, said June Mulroy, executive director for delivery at the Pensions Regulator.
Jonathan Land, business recovery services partner at PricewaterhouseCoopers, who advised Nortel’s pension fund trustees throughout the two-year case, told the Daily Telegraph that it was a “clear message to international groups that they need to support UK pension schemes.”
