Bloom & Ors v The Pensions Regulator & Ors

This Court of Appeal considered how liabilities created under the Pensions Act 2004 regime for financial support directions (FSDs) and contribution notices (CNs) fall to be treated in insolvency. The court held that a contribution notice issued after the start of an administration is not a provable debt in that administration because, at the administration start date, there is no pre-existing legal obligation on the target company of the kind required by Insolvency Rules 1986 rule 13.12(1)(b). The court further held that, where the liability is not provable, Parliament’s scheme and authority (in particular Re Toshoku) indicate that a statutory liability imposed on a company during insolvency will ordinarily be payable as an expense of the administration (a necessary disbursement) rather than fall into the "black hole".

The decision depended upon interpretation of the Pensions Act 2004 (notably ss.43–47 and related provisions), Insolvency Rules 1986 rule 13.12, and authorities on provable debts and administration/liquidation expenses (in particular Re Toshoku Finance UK plc [2002] UKHL 6). The court dismissed the appeals against Briggs J’s order and endorsed his reasoning on provability and expense status.

The appeals arose from two consolidated challenges by administrators in the Nortel and Lehman groups to a High Court declaration on the insolvency treatment of liabilities under the Pensions Act 2004 FSD/CN regime. The Pensions Regulator had taken steps under the 2004 Act (warning notices and Determinations Panel decisions) indicating potential issue of FSDs and, if non-complied with, CNs. The administrators sought declarations about whether a CN issued after the start of administration, or a CN issued in liquidation where the FSD was issued in administration, would be provable debts or expenses or otherwise incapable of recovery.

Procedural posture: appeal from Briggs J (High Court, Chancery Division) [2010] EWHC 3010 (Ch) to the Court of Appeal, which heard argument and dismissed the appeals.

Nature of relief sought: declarations and guidance as to whether liabilities under CNs/FSDs are provable in administration/liquidation, payable as administration/liquidation expenses, or not payable (the "black hole").

Issues framed:

• Whether a liability under a contribution notice issued after the commencement of an administration is a provable debt for that administration under Insolvency Rules 1986 r.13.12.
• If not provable, whether such a statutory liability is nevertheless payable as an expense (a necessary disbursement) of the administration or liquidation.
• Related questions about the effect of timing (whether an FSD or earlier regulatory step pre-dated insolvency) and the interplay with s.75 Pensions Act 1995 style liabilities.

Court’s reasoning (concise): The court analysed r.13.12 and decided that, following binding authority (notably Glenister v Rowe and related authorities), a contingent liability is provable only where there is, at the cut-off date, some prior legal obligation on which the later monetary liability depends. The FSD/CN regime involves multiple statutory discretions (Regulator, Determinations Panel, and potentially the Upper Tribunal) and thus no fixed legal obligation exists at the administration start date merely because the statutory regime and facts enabling it exist. Accordingly a CN issued after the start of administration is not provable in that administration. Turning to whether the liability is nevertheless payable as an administration expense, the court applied the reasoning in Re Toshoku: where Parliament imposes a statutory liability on a company during insolvency (or by operation of a legislative criterion that extends to post-cut-off periods), such liability will generally be a necessary disbursement and payable as an expense, unless it fits within other categories or is excluded by the statute. The court therefore held the CN liability payable as an expense of the administration in the circumstances before it. The court emphasised the anomalies and difficulties that result from this answer but considered the alternative (the black hole) incompatible with Parliament’s purpose in the 2004 Act. The appeals were dismissed.

Wider context: the court noted the novelty of the FSD/CN regime and the practical importance of resolving these issues given potential sums involved and the interaction with rescue aims of administration. The decision leaves open some subsidiary timing questions (for example whether an earlier regulatory step might create an obligation before the administration start), which were not decided.

Appeal dismissed. The Court of Appeal agreed with Briggs J that (i) a contribution notice issued after the commencement of an administration is not a provable debt in that administration because there was no pre-existing legal obligation at the administration cut-off date within the meaning of Insolvency Rules 1986 r.13.12(1)(b); and (ii) where the obligation is not provable, Parliament’s statutory scheme and authority such as Re Toshoku indicate that a statutory liability of that kind will ordinarily be payable as a necessary disbursement (an expense) of the administration (or of the liquidation if the relevant events fall during a liquidation). The appeals were therefore dismissed for the reasons given by Briggs J, with some subsidiary timing questions left open for later argument.

Appeal to the Court of Appeal (Civil Division) from Briggs J, High Court of Justice, Chancery Division, Companies Court, judgment [2010] EWHC 3010 (Ch); Court of Appeal decision reported [2011] EWCA Civ 1124.