In the news

By: Michael Lewis, Business Reporter
Toronto Star

Insider says odds of an appeal are ‘miniscule’ in light of mounting legal tab.

Nortel Networks creditors are under pressure to accept a court decision handed down Tuesday that applied proportionality to a division of assets in the long-running bankruptcy case that has already generated an estimated $1.5 billion (U.S.) in fees.

“These insolvency proceedings have now lasted over six years at an unimaginable expense and they should if at all possible come to a final resolution,” Ontario Superior Court Judge Frank Newbould in Toronto wrote in the decision.

“It is in all the parties’ interest for that to occur.”

One lawyer who declined to speak for attribution said odds of any of the three competing Nortel creditor entities being granted leave to appeal are “minuscule” in light of fees that include about $476 million that has been paid out in Canada alone, according to a tally by independent financial analyst Diane Urquhart.

The issue of professional fees has been controversial, with Justice Morawetz of the Ontario Court of Justice Geoffrey Morawetz demanding a costing in 2013 of the Canadian action, saying the court here “has been in the dark.”

While lawyers representing Nortel in the U.S. submitted fees for court approval monthly, Urquhart said she believes submissions have not been similarly made in Canada, including from the court-appointed monitor Ernst & Young.

The court’s initial order in the case called for professionals to submit accounts “from time to time,” but Urquhart said Newbould may have to approve or claw back the service charges after the dispersal of residual assets is sorted out.

A spokesperson for the Ontario Ministry of the Attorney General was unable to immediately respond to questions about fees approvals.

Judges in Canada and the U.S. issued the bankruptcy decision simultaneously, ordering a division of about $7.3 billion (U.S.) in Nortel’s assets based on the debt each of Nortel’s three geographic entities after all cross-border and inter-company claims have been resolved.

The Canadian unit had argued it should receive about 83 per cent of the money because it was the legal owner of many of the assets sold.

The European businesses wanted the money divided based on each region’s contribution toward creating the value of the assets that were sold.

The U.S. unit said it deserved 73 per cent of the cash based on its beneficial ownership model, but the judges rejected all three of the distribution schemes.

According to an analysis by a Chicago-based investment firm, the judges’ formula means the Canadian creditors will collect about 55 per cent of what they claim to be owed, U.S. creditors about 93 per cent and European creditors 64 per cent.

The decision also means about 33,000 remaining pensioners in the U.K. will be on an equal footing with all other creditors, said D.J. Miller, lead Canadian insolvency partner in the case. She said it reflects the position advanced by U.K. pension claimants and supports a fundamental principle of equity among creditors.

The decision was also welcomed by retired Nortel employee Don Sproule, president of Nortel Retirees and Former Employees Protection Canada, saying it could finally produce a payout to more than 20,000 former employees. That could be within a year barring appeals, Urquhart said.

U.S. bankruptcy Judge Kevin Gross and Justice Newbould said in separate opinions that each regional business would receive cash to pay its creditors based on their claims against it as a percentage of the overall claims worldwide.

The judges said a pro rata division was the most fair and satisfactory way to split the money.

Gross wrote in his 130-page opinion that the various regional businesses “have lost sight of the irrationality of their respective positions” and left “virtually no middle ground.”

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