Nortel Networks: Canadian Insolvency Counsel for the UK Pension Claimants, the largest single creditor in the worldwide Nortel Networks proceedings - $4 Billion.
TGF was retained in March, 2013 by the Trustees of Nortel Networks UK Limited’s Pension Trust and the Pension Protection Fund (collectively, the “UK Pension Claimants”) and acted as their Canadian counsel throughout the unprecedented trials and appeals. The UK Pension Claimants had previously been represented by a large national law firm in Canada. This mandate involved a team of TGF lawyers from both the litigation and insolvency groups, in dealing with the cross-border trials (Canada and the US) and multi-jurisdictional insolvency proceedings (Canada, the US and the UK) of the global Nortel group.
In March, 2013, after three failed court-ordered mediations, the Canadian and US Courts determined that no mediated solution was possible among the parties to reach agreement on how to allocation US$7.3 billion sitting in a lockbox (the “Lockbox Funds”). The Lockbox Funds represent the proceeds of sale of the liquidation of the Nortel’s worldwide operation among the various insolvency estates in each of Canada, the US and the Europe, Middle East and Africa (“EMEA”) regions. Orders were issued in Canada and the US to establish a framework for an unprecedented joint trial, with a judge in each of Toronto and Delaware presiding and witnesses giving evidence in one of the jurisdictions. A live stream of the trial was available to those outside the courtroom in other jurisdictions, including the UK.
The UK Pension Claimants are the largest single creditor in Nortel’s global insolvency proceedings and were designated by the Canadian and US Courts as a “Core Party” to participate in the determination of how the Lockbox Funds would be allocated among the various insolvency estates. Each of the estate representatives in Canada, the US and EMEA (the Monitor in Canada, the Joint Administrators in the UK and the Trustee and Debtors in the US), as well as certain creditor groups, participated in the unprecedented allocation trial as Core Parties. This litigation involved the production and exchange of over 3 million documents and deposition of over 110 fact witnesses conducted in many countries across three continents – all within a highly compressed time frame of six months. The allocation trial also involved the exchange of over 40 expert reports and live expert testimony, and 28 days of trial.
Each of the other Core Parties to the allocation trial advanced a theory that was based on the ownership of rights in Nortel’s assets and a valuation of those rights. The UK Pension Claimants were the only party to the allocation trial that argued for a pro rata allocation of the Lockbox Funds as its sole allocation position. This position was developed and embodied in an allocation pleading within 60 days of TGF being retained in 2013.
Other parties considered the UK Pension Claimants’ allocation position to be a “long shot”. On May 12, 2015, the Canadian Court and the US Court released their separate decisions providing for a pro rata allocation of the Lockbox Funds. This was a tremendous and unprecedented victory for TGF’s clients. Parties who had opposed the pro rata allocation arguments brought motions for reconsideration before the Canadian and US Court, seeking to amend or vary the outcome. Other than certain clarifications that were not opposed by the UK Pension Claimants, the decisions were confirmed. Certain parties commenced appeals of the allocation decisions in Canada and the US.
On May 3, 2016 the Court of Appeal for Ontario issued its decision in unprecedented 42 page written Reasons, denying leave to appeal. After an appeal had been argued before the US Court but prior to any decision being released the parties reached a global settlement, which rendered the appeals moot. A separate Plan of Arrangement in the US and a Plan of Compromise and Arrangement in the CCAA proceeding were each approved by creditors and received Court approval in each jurisdiction. The process of making distributions to creditors is now finally underway.
Significance of the Case:
- It is the first time that a Canadian and a US Court have sat jointly in a trial (as opposed to a motion or other hearing).
- It is the first case in which Bankruptcy Courts of two jurisdictions have determined that intellectual property and other assets developed by companies in multiple countries and shared by each of those companies, does not constitute property of any one of the companies.
- It is the first time that there has been appellate confirmation in any jurisdiction of an allocation of global sale proceedings based on pro rata principles to address competing claims to ownership.
- It is the first appellate decision in Canada following a joint trial conducted by a Canadian Court with a foreign Court.