Bloom & Ors v The Pensions Regulator & Ors

For a liability to be provable as a future or contingent debt, the company must already be subject to a legal obligation before insolvency by reason of which the later liability may arise. The existence of circumstances enabling the financial support direction regime, including the statutory look-back period, is insufficient where the regime involves substantial discretionary decisions.

A liability first imposed during insolvency under the Pensions Act 2004, which is neither provable nor otherwise an expense, may rank as a necessary disbursement under the principle in Re Toshoku Finance UK plc. The absence of express insolvency provisions does not prevent that result.

Administrators of companies in the Nortel and Lehman Brothers groups appealed against Briggs J’s decision in the Companies Court, reported at [2010] EWHC 3010 (Ch). The appeals concerned liabilities arising under the financial support direction and contribution notice regime in the Pensions Act 2004.

The principal issue was whether a liability arising after administration or liquidation was a provable debt, an expense of the insolvency, or irrecoverable except after all other creditors had been paid. A related issue concerned the obligation of an insolvent company and its office-holder to comply with a financial support direction.

The Court of Appeal, in a judgment delivered by Lloyd LJ with which Laws and Rimer LJJ agreed, dismissed both appeals.

1. Provability. Under rule 13.12(1)(b) of the Insolvency Rules 1986, a liability arising after the commencement of an insolvency process is provable only where, at that commencement, the company was already subject to an obligation by reason of which it might later become liable. A company’s exposure to the financial support direction regime, the existence of the relevant facts, and the statutory look-back date did not themselves create such an obligation. The regime involved substantial discretionary decisions by the Pensions Regulator, the Determinations Panel and potentially the Upper Tribunal.
2. Effect of a financial support direction. Once served on a company in administration or liquidation, a financial support direction creates a binding statutory obligation. The office-holder must procure compliance, subject to the availability of assets and the applicable priority rules. The obligation is not subordinated merely because compliance may prejudice the general body of creditors.
3. Expense of the insolvency. The liability under a financial support direction, and the liability under a consequent contribution notice, is not a provable debt in the circumstances considered. Nor is it an expense under another specific category. Applying Re Toshoku Finance UK plc [2002] UKHL 6, the liability is therefore a necessary disbursement and ranks as an expense of the administration or liquidation. The statutory regime need not expressly state that it applies to companies in insolvency.
4. The apparent anomalies in priority did not justify treating the liability as provable or consigning it to an irrecoverable category. The precise earlier point at which an obligation might arise, such as a warning notice or determination notice, was left open. The arguments based on Ex parte James did not arise.

The relevant parts of the judge’s order therefore stood.

• Court of Appeal (Civil Division): appeals dismissed; the liabilities under the financial support direction and contribution notice regime ranked as expenses of the insolvency.
• High Court, Chancery Division, Companies Court: Briggs J’s judgment at [2010] EWHC 3010 (Ch) held that the liabilities were not provable in the relevant administration or liquidation but were payable as expenses.