Nortel Bankruptcy Mediation Commences

by Jordan Richardson on April 25, 2012

In what is one of the saddest stories of Canadian industry in recent memory, Nortel’s liquidation appears to be reaching its final stages. We’ve covered a few elements of this tale here, from the patent auction to Ottawa’s non-review of the auction and the fall-out for pensioners.

The multinational telecommunications equipment manufacturer has also been going through some legal entanglements associated with some less-than-legal accounting practices. Former CEO Frank Dunn, ex-CFO Douglas Beatty and ex-controller Michael Gollogly are charged with cooking the books and essentially defrauding Nortel of roughly $12.8 million in bonuses.

And now, mediation over the $9 billion in assets remaining in the fold is proving to be more than a little complex.

The goal is to settle the wide variety of creditor claims on Nortel, of course, but that is going to take some work. There are countless claims internationally, including pensioners, disabled former employees, trade creditors, bond holders, governments, and other claimants throughout 20 countries on every continent on the planet. Legal hearings are currently underway in the United Kingdom, United States and Canada.

“The Nortel insolvency is one of the most complex trans-national legal proceedings in history,” said Ontario Chief Justice Warren Winkler. “The complexity of this case would make even a conflict-of-laws professor cringe.”

Part of the trouble lies in the fact that the amount of the claims exceeds the residual assets held by Nortel. Also, previous efforts at settling the cases have fallen flat, which could mean that litigation is in the wings. And if that happens, Nortel’s asset pool shrinks further and the potential of fully paying creditors dissipates.

Another wrinkle lies in the fact that there is no one court authority presiding over the case, so it can be hard to find consistency. If things go to litigation on a broader level, the process could be even longer and appeals would theoretically flood in.

Winkler certainly seems to favour mediation in the proceedings, noting that litigation could lead to conflicting results. The plan going forward is to meet with various parties individually to attempt to build a settlement that is agreeable.

It is indeed disheartening to witness these sorts of proceedings. Nortel was once a symbol of Canada’s tech leadership, but the years have not been kind. The company was unable to survive the dot-com bubble and saw stock prices plummet. After a series of massive layoffs and several fiscal “restructuring” plans that saw financial officers fired for mismanagement, the company filed for protection from creditors and lost customers to other more enticing prospects. By 2009, the company succumbed to bankruptcy.

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