Nortel Networks reaches global settlement

Nortel Networks Corporation (Nortel Canada) is the Canadian parent company of what was one of the largest telecommunications businesses in the world. In early 2009, formal insolvency proceedings were commenced in Canada, the United States and England, among other places. Nortel’s worldwide business was liquidated through a number of Court-approved sales of its business units and a US$4.5-billion sale of its residual patents, resulting in US$7.3 billion of global sale proceeds to be allocated amongst the Nortel debtor companies in Canada, the United States and Europe.

Ernst & Young Inc. was appointed as CCAA Monitor (the Monitor) in respect of Nortel Canada and, after the resignation of Nortel Canada’s board of directors, its powers and responsibilities were expanded to protect the interests of Nortel Canada’s stakeholders.

Following the failure of several mediations, an unprecedented “joint” trial to determine the allocation of these sale proceeds among the Nortel debtors (the Allocation Dispute) was held before the Ontario Court and Delaware Bankruptcy Court.

This trial took place in the spring of 2014. The lead-up discovery and litigation process involved approximately 150 fact and expert depositions in various cities worldwide, the production and review of millions of documents and the exchange of dozens of expert reports.

In May 2015, the Ontario and Delaware courts released separate decisions in the Allocation Dispute, each of which provided for a modified pro-rata allocation of the proceeds amongst the Nortel debtors based on the amount of creditor claims against each debtor.

Those decisions were appealed by the US interests. In Canada, leave to appeal was denied by the Ontario Court of Appeal in an unprecedented 42-page decision, with Lexpert magazine citing this as one of its “Top 10 Business Decisions of 2016” and calling it “undoubtedly a major catalyst to the global settlement that followed.”

Leave to appeal to the Supreme Court of Canada was sought by the US interests.

In an effort to avoid further protracted litigation and following months of further mediation and negotiations, in October 2016 the Nortel debtors and certain of their significant creditors from Canada, the United States and Europe reached a global settlement of the Allocation Dispute and various other matters.

The global settlement entitled Nortel Canada to 57.1 per cent of the global sale proceeds of US$7.3 billion, Nortel’s US debtors to 24.35 per cent and Nortel’s European debtors to 18.55 per cent. Stemming from and in order to implement the global settlement, coordinated plans of arrangement were also negotiated amongst the Nortel Canada and US debtors and their key stakeholders and these plans were filed in Canada and the US Creditors and the courts approved the plans in January 2017, with in excess of 99 per cent of voting creditors (both by number and value) voting to approve the Canadian plan. Two individual unrepresented opposing creditors sought leave to appeal the Canadian sanction order. The leave application was dismissed by the Ontario Court of Appeal in March 2017.

The Monitor then led the negotiation of a waiver and reserve agreement, which permitted the global settlement and plans to become effective in early May 2017 notwithstanding the intention of an individual opposing creditor to seek leave to appeal to the Supreme Court of Canada. (The Supreme Court of Canada ultimately denied this leave application in July 2017.)

On May 25, 2017, Nortel Canada announced receipt of its allocation entitlement of approximately US$4.165 billion plus a further US$237 million of additional sale proceeds and US$35 million on account of cost reimbursements. Initial distributions to unsecured creditors of Nortel Canada commenced in July 2017.

The case involved the coordinated, multi-jurisdictional — Canada, US, Europe and various other jurisdictions — sale of Nortel’s global business units and patent portfolio for more than US$7.3 billion, followed by an unprecedented simultaneous joint, video-linked trial before the Ontario and Delaware courts to address the allocation of those proceeds.

A far-reaching global settlement was ultimately negotiated amongst numerous international parties leading to creditor and court plan approvals and distributions of billions of dollars to Nortel creditors worldwide.

Goodmans LLP represented the Monitor and the foreign representative for the Canadian proceeding in the Chapter 15 recognition proceedings under the U.S. Bankruptcy Code with a team led by Jay Carfagnini, Joseph Pasquariello and Chris Armstrong (restructuring), and including Gale Rubenstein, Melaney Wagner and Ryan Baulke (restructuring), and Benjamin Zarnett, Jessica Kimmel, John Keefe, Alan Mark, Graham Smith, Peter Ruby, Jason Wadden, Lauren Butti and Peter Kolla (litigation).

Gowling WLG (Canada) LLP and Norton Rose Fulbright Canada LLP represented Nortel Canada with a team that included Derrick Tay and Jennifer Stam (restructuring), Michael Lang and Jim Cade (corporate/M&A), Tony Reyes and Evan Cobb (restructuring), Chris Hunter (intellectual property), Alan Merskey and Vasuda Sinha (litigation) and Ruth Wahl (research).

Torys LLP was Canadian counsel for Nortel Networks Inc. (Chapter 11 debtor and US subsidiary), with a team that included Tony DeMarinis, Scott Bomhof and Adam Slavens (restructuring) and Sheila Block, Andrew Gray and Jeremy Opolsky (litigation).

Davies Ward Phillips & Vineberg LLP and Lax O’Sullivan Lisus Gottlieb LLP were co-Canadian counsel for the Joint Administrators of Nortel Networks UK Limited, and comprised Matt Gottlieb (litigation) and Robin Schwill (restructuring).

Osler, Hoskin & Harcourt LLP represented the former Directors and Officers of Nortel Canada with a team that included Lyndon Barnes, Alex Cobb and Adam Hirsh.

Koskie Minsky LLP represented the Former Employees and LTD Beneficiaries of Nortel Canada . The team from Koskie Minsky included Mark Zigler, Susan Philpott, Barbara Walancik and James Harnum (litigation).

Paliare Roland Rosenberg Rothstein LLP was counsel for the Superintendent of Financial Services (Ontario), with a team that included Ken Rosenberg, Lily Harmer and Massimo Starnino (restructuring/litigation).

McCarthy Tétrault LLP represented Morneau Shepell Ltd., as administrator of Nortel’s Canadian registered pension plans, with a team that included Jamey Gage, Barbara Boake and Sharon Kour (restructuring), Paul Steep and Byron Shaw (litigation), Barry Sookman (intellectual property) and Randy Bauslaugh (pensions).

Janice Payne and Chris Rootham (litigation) of Nelligan O’Brien Payne LLP and Thomas McRae and Arthur Jacques (litigation) of Shibley Righton LLP were counsel to the Nortel Continuing Canadian Employees.

Barry Wadsworth was in-house counsel for UNIFOR.

Dentons Canada LLP was Canadian counsel for Wilmington Trust, National Association, with a team that included John Salmas and Ken Kraft (restructuring).

Bennett Jones LLP was Canadian counsel for the Informal Nortel Noteholder Group with a team that included Rick Orzy and Kevin Zych (restructuring), and Richard Swan and Gavin Finlayson (litigation).

Cassels Brock & Blackwell LLP was Canadian counsel for the US Official Committee of Unsecured Creditors with a team that included Michael Wunder, Shayne Kukulowicz, Ryan Jacobs, Jane Dietrich and Monique Sassi (restructuring) and Geoffrey Shaw and Stefanie Holland (litigation).

Thornton Grout Finnigan LLP and Blake, Cassels & Graydon LLP were co-counsel for the UK Pension Protection Fund and Nortel Networks UK Pension Trust Limited with a team that included Michael Barrack (litigation), D.J. Miller (restructuring), John Finnigan (litigation) and Rebecca Kennedy (restructuring). [There were participating US counsel for all parties, as well as UK counsel in some cases.]
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