Nortel Networks Corporation (Re), 2015 ONSC 2987
As discussed in our May 15, 2015 Blakes Press Release: Historic Trial and Landmark Decision in Allocation of Nortel Estate: Significant Victory for Nortel Pensioners Whose Benefits Were at Risk, the Ontario Superior Court of Justice and U.S. Bankruptcy Court delivered an unprecedented joint ruling in the multi-jurisdictional dispute over the allocation of US$7.3-billion raised from the sale of the Nortel Networks global business units and patent portfolio.
At dispute was how to divide Nortel’s estate between bondholders, pensioners, suppliers and former employees of the parent company in Canada and its U.S. and European subsidiaries.
The Canadian unit argued for approximately 83 per cent of the proceeds, as legal owner of many of the assets sold. The European businesses argued for division based on each region’s contribution toward creating the value of the assets that were sold and the U.S. argued for 73 per cent of the proceeds based on its beneficial ownership model.
Justice Frank Newbould of the Ontario Superior Court of Justice in Toronto and Justice Kevin Gross of the U.S. Bankruptcy Court in Wilmington, Delaware, rejected arguments that would have favoured certain groups over others and ruled that creditors in Canada, the U.S. and the United Kingdom would receive claims based on a “modified pro rata allocation model” that would give all three creditor groups the same value on the dollar.
During the lengthy cross-border trial, the Canadian and U.S. judges heard 150 hours of testimony from numerous witnesses and experts with courtrooms linked by video and broadcast across a secure Internet network to parties worldwide. In their simultaneous opinions, the judges said that a pro rata division was the most fair and satisfactory way to split the proceeds.
According to Justice Gross, the ruling is an extraordinary result that rests on equitable principles, and spurns the legalistic theories painstakingly advanced by Nortel Canada, Nortel U.S. and other contenders. He went on to say that “Nortel operated, prior to insolvency, as a highly integrated multinational that derived significant benefits from operating as ‘one Nortel’.” Justice Newbould continued this thought saying that Nortel’s corporate culture will be reflected in the process of dividing the cash among various national units to arrive at an equitable split of the money. In his ruling, he wrote: “Doing what is just in the unique circumstances of this case should govern the allocation.”
This historical decision, supporting arguments put forward on behalf of Nortel’s U.K. pension claimants, marks a significant victory for the 33,000 remaining pensioners in the U.K. and approximately 20,000 pensioners of Nortel Canada whose benefits were at risk as the dispute continued.
The significance of this case is that it is the first international insolvency case in which the proceeds from a sale of assets have been allocated to separate bankruptcy estates in different countries according to the claims of creditors following a technologically advanced, video and online, cross-border trial.