Kodak UK pension scheme exposes legal loophole

KodakKodak's UK pension scheme may face a tough legal battle to receive pension payments over a legal loophole involving companies with a US parent, say experts.The 131-year company that pioneered the camera and colour printing press filed for protection under the Chapter 11 rules in the US this week. Under the bankruptcy filing the UK pension fund is classed as having a "significant general unsecured claim", weakening the rights of the UK members in the Kodak scheme. The scheme has 15,000 active members and needs around £517m to sustain payments over the next decade.

Pensions specialist Terry Gostelow warned other UK subsidiaries of US-parented companies could be under threat. He said: "The implications of this development could not only be troubling for the Kodak UK Pension Scheme Trustees. This could be a significant development for any scheme where there is a US-based parent company.

"The strength of the trustees position with the backing of the Pensions Regulator could be undermined if the pension deficit is treated as an "unsecured claim" in the event of bankruptcy, and trustees will need to re-assess the employer covenant."

The UK Pensions Regulator can intervene in cases where the parent company is overseas and issue a Financial Support Direction (FSD). A Financial Support Direction requires a connected or associated party to support a final salary pension scheme within the same corporate group. It has been used successfully in the Great Lakes and Sea Containers cases in recent years, where the companies were in financial trouble and the FSD strengthened the pension Trustee's position during negotiations.

A spokesperson for The Pensions Regulator said: "We are aware that the US parent company, Eastman Kodak Company, has filed for Chapter 11 bankruptcy protection. We are in contact with the UK pension fund trustees."

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