Nortel has lost its legal battle against the Pensions Regulator in its attempt to make the bankrupt networking vendor liable for a £2.1bn deficit in its pension scheme through a Financial Support Direction (FSD).
Nortel took to the stand alongside fellow basket case Lehman Brothers to argue against the case, which came in spite of a US judgment that forbade lawsuits on Nortel's estate while it was under Chapter 11 protection.
The ruling by Mr Justice Briggs said that where an FSD is issued against a company after insolvency, the cost of complying with that direction is an expense in that insolvency. It therefore must be paid before any distributions to unsecured creditors.
This means that an FSD is valid if issued after an insolvency event and supports the claims of the Nortel pension trustees in their respective administration processes.
The Regulator welcomed the judgment, saying: "Where schemes are left with inadequate financial support, the regulator engages with all who might have a responsibility to support the scheme to ensure, where possible and reasonable, that the interests of scheme members are protected."
However, since the ruling guarantees the payment of pension fund deficits over and above all other creditors it has serious implications for how insolvencies of multinationals headquartered outside the UK are dealt with.
Note that Nortel has not actually raised £2.1bn through its various asset sales, and therefore cannot possibly cover the enormous hole in its fund.
Justice Briggs recognised this in his decision, saying that: "Parliament has either through deliberate intent or (I suspect) inadvertance legislated in such a way as to leave the priority problems associated with the implimentation of the FSD to be dealt with by a technical formula that was neither designed nor in my view fit for purpose."
Briggs, who said he had been driven to his decision by earlier court rulings, hinted that an appeals court should find a way to overturn the ruling.
Nortel's administrators Ernst & Young declined to comment.