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super priority for pension liabilities – an end to the rescue culture?

14 January 2011

The High Court has given super priority to pensions liabilities in an application brought by the administrators of Lehman Brothers European division and Nortel Networks.

It held that, whilst a company’s obligations to contribute to the pension schemes of any associated companies under the Pensions Regulator’s moral hazard powers are not provable debts in the administration, they are, in fact, payable as expenses of the administration which would have super priority.

Coupled with case law in relation to rent being payable in certain circumstances as an expense of the administration, the attraction of the administration procedure is becoming increasingly eroded. Lenders will also be more reluctant to lend to groups with large pension deficits due to uncertainty as to whether their debts will be repaid.

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