When a US judge hearing the Nortel Networks Corp. trial withdrew from a scheduled Canada-US joint hearing on the eve of arguments, it’s fair to say some jaws dropped.
US Bankruptcy Judge Kevin Gross and Ontario Superior Judge Frank Newbould have been carefully moving in lockstep to determine how $7.5 billion in assets should be carved up between former employees, pensioners, creditors and bondholders. But a fight over bond interest made it clear they have gone distinctly out of step as of late.
Claims by some Nortel bondholders that they were entitled to up to $1 billion in interest repayment were proving a sticking point to reaching any larger agreement. Judge Gross and Justice Newbould ordered a one-day interest-determination trial to clear it up and move the five-year trial closer to the home stretch. The way it played out did anything but.
Judge Gross’s decision to withdraw at the 11th hour, after learning the US estate had reached a tentative deal with bondholders, is leading to speculation that a fault line is opening up between the Canadian and American judges. Some people are starting to question whether the two judges will be able to cross the finish line together.
“It certainly does make us all wonder that,” says one anonymous source. “It raises some questions, and that has interesting implications for how parties approach matters over the next few months.”
The problem centred on Nortel’s so-called crossover bonds, issued by Nortel Canada but guaranteed by Nortel US. Crossover bondholders contend they are entitled to interest that accrued since the company filed for bankruptcy in 2009. Canadian and UK creditors counter they are not, which led the two judges to set a hearing date for a Friday in July.
On the Wednesday right before, Nortel US advised it had reached a proposed deal with the crossover bondholders and was requesting a US adjournment hearing for Friday’s joint session. As the proposed deal would come before Judge Gross for approval, they said, his participation in the interest-determination hearing was no longer necessary. Judge Gross withdrew from the joint hearing on Thursday afternoon.
The proposed US bond settlement falls under US law, but Judge Newbould went ahead with the interest-determination trial in Canada. In a decision issued in August, he sided with lawyers for Canadian creditors, finding bond interest stopped accruing when the company put itself under the Companies’ Creditors Arrangement Act.
The sharp divergence between the courts has sparked much speculation. “You could see from the way the case has unfolded the possibility of having two judges with different decisions both going to appeals in different courts — and no final result,” says someone watching events.
“People are seeing a potential rift between the two courts as a result of recent events,” says another anonymous source. “But nobody’s sure yet what it means.”
There does seem to be consensus on at least one thing. “It means this thing could drag on for a lot longer.”
US Bankruptcy Judge Kevin Gross and Ontario Superior Judge Frank Newbould have been carefully moving in lockstep to determine how $7.5 billion in assets should be carved up between former employees, pensioners, creditors and bondholders. But a fight over bond interest made it clear they have gone distinctly out of step as of late.
Claims by some Nortel bondholders that they were entitled to up to $1 billion in interest repayment were proving a sticking point to reaching any larger agreement. Judge Gross and Justice Newbould ordered a one-day interest-determination trial to clear it up and move the five-year trial closer to the home stretch. The way it played out did anything but.
Judge Gross’s decision to withdraw at the 11th hour, after learning the US estate had reached a tentative deal with bondholders, is leading to speculation that a fault line is opening up between the Canadian and American judges. Some people are starting to question whether the two judges will be able to cross the finish line together.
“It certainly does make us all wonder that,” says one anonymous source. “It raises some questions, and that has interesting implications for how parties approach matters over the next few months.”
The problem centred on Nortel’s so-called crossover bonds, issued by Nortel Canada but guaranteed by Nortel US. Crossover bondholders contend they are entitled to interest that accrued since the company filed for bankruptcy in 2009. Canadian and UK creditors counter they are not, which led the two judges to set a hearing date for a Friday in July.
On the Wednesday right before, Nortel US advised it had reached a proposed deal with the crossover bondholders and was requesting a US adjournment hearing for Friday’s joint session. As the proposed deal would come before Judge Gross for approval, they said, his participation in the interest-determination hearing was no longer necessary. Judge Gross withdrew from the joint hearing on Thursday afternoon.
The proposed US bond settlement falls under US law, but Judge Newbould went ahead with the interest-determination trial in Canada. In a decision issued in August, he sided with lawyers for Canadian creditors, finding bond interest stopped accruing when the company put itself under the Companies’ Creditors Arrangement Act.
The sharp divergence between the courts has sparked much speculation. “You could see from the way the case has unfolded the possibility of having two judges with different decisions both going to appeals in different courts — and no final result,” says someone watching events.
“People are seeing a potential rift between the two courts as a result of recent events,” says another anonymous source. “But nobody’s sure yet what it means.”
There does seem to be consensus on at least one thing. “It means this thing could drag on for a lot longer.”
