Nortel stakeholders reach $7.3bn settlement agreement

December 2016 | DEALFRONT | BANKRUPTCY & CORPORATE RESTRUCTURING

Financier Worldwide Magazine

Almost eight years after multinational telecommunications and data networking equipment manufacturer Nortel Networks Corporation originally filed for Chapter 11 bankruptcy protection, on 14 January 2009, a settlement has now been reached with its creditors under Canada’s Companies’ Creditors Arrangement Act (CCAA).

Nortel (and its subsidiaries Nortel Networks Limited, Nortel Networks Technology Corporation, Nortel Networks International Corporation and Nortel Networks Global Corporation) was the first major technology company to seek bankruptcy protection following the global economic downturn which ensued in the wake of the international financial crisis of 2007-08.

At that time, Nortel was worth in the region of $250bn and had 93,000 employees worldwide.

By the close of 2011, virtually all of Nortel’s substantial assets had been sold to other entities and the company itself was split into regional entities, such as Nortel Networks Limited in Canada and Nortel Networks Inc (NNI) in the US.

Also during this period there have been many lengthy and long-running court battles over which Nortel entity owed what and to whom, with how the money raised by Nortel’s US entities following the sale of assets should be divided among Canadian (Nortel Canada) and European divisions (Nortel Networks UK Limited, for example) being the main cause of conflict and dispute.

However, the resolution proffered by the CCAA, known as a Settlement and Plans Support Agreement, proposes the allocation of approximately $7.3bn of sale proceeds currently held in escrow, as well as decisions related to various other claims, disputes and matters.

The Agreement, which involves EY as court-appointed monitor, will see Nortel Canada receive 57.1065 percent of the sale proceeds in escrow, which as of 31 July was approximately $4.143bn. The Agreement also provides Nortel Canada with approximately $237m of other sale proceeds plus a further amount of sale proceeds relating to the transfer of IP addresses by Nortel Canada currently held subject to various court orders, as well as payment to Nortel Canada of $35m on account of reimbursement of various costs incurred in connection with the asset sales.

Furthermore, the Agreement is subject to certain conditions, including the sanction and effectiveness of a plan of arrangement under the CCAA to be presented to creditors of Nortel Canada, confirmation and effectiveness of plans of reorganisation to be presented to creditors of NNI and its affiliated debtors in proceedings pending under Chapter 11 of the US Bankruptcy Code, and approvals being granted by courts in the UK and France.

Representatives of Nortel Canada have stated that, once conditions have been satisfied, the funds received pursuant to the Global Settlement and Support Agreement to make distributions to creditors pursuant to the plan of arrangement to be presented, subject to creditor and court approval and implementation of the plan, are expected to be made in the first or second quarter of 2017.

In addition to the substantial distributions to be made to Nortel’s Canadian entities, EY has also announced that the 19 Nortel companies across Europe that entered administration in 2009 will also be recipients of the settlement.

“Today is a good day for the European creditors of Nortel Networks including thousands of pensioners and former employees,” said Alan Bloom, joint administrator at EY. “The settlement, which is subject to court approvals in the US, Canada, UK, and France should enable us to start the process of paying them a significant dividend in the first quarter of 2017.”

As a somewhat unsavoury postscript to the apparent end of this long-running bankruptcy saga, the largest in Canadian history with legal and professional fees in the region of $2bn, there have been allegations that Nortel executives have been drawing retention bonuses totalling $190m at the same time as pensioners, shareholders and former employees of Nortel have been left struggling with considerable losses.

Fraser Tennant