It was ordered that the Administrators could distribute to unsecured creditors, 8 years after Nortel entered Administration, so long as a reserve was maintained in relation to potential expense claims.
On 14 January 2009, 19 of the Nortel Group companies based in Europe, the Middle East and Asia ("the EMEA Companies") were placed into Administration in England. The Centre of Main Interests for each of the EMEA Companies were held to be in England and Wales, and each of the Administrations were held to be main proceedings. The Administrators decided in the interests of creditors not to open secondary proceedings in each of the jurisdictions as it was considered this would erode confidence in the trading and stability of the companies and disrupt the global reorganisation or sale of the business, reducing the value to be realised for the benefit of creditors. At the same time, the Administrators gave reassurances that creditors in those jurisdictions would be in no worse position than if secondary proceedings were opened. No secondary proceedings were opened except for Nortel Networks S.A. ("NNSA") in France as it would have otherwise been unable to carry out a major and urgent part of its restructuring (as discussed in our earlier article).
This application related to the remaining 18 EMEA Companies ("the Companies"). There was potential for certain claims to qualify as Administration expenses and therefore rank ahead of unsecured creditors. Claims had not actually been made but the uncertainty or need to reserve for them would prevent or delay the making of long-awaited distributions to unsecured creditors.
The expense claims relate to:
- Kapsch claim - a former supplier had submitted an unsecured claim for an alleged breach of a carrier network equipment contract and reserved its right to assert an expense claim in relation to acts undertaken by the Administrators in the months after Nortel Networks UK went into Administration.
- SNMP claim - software licensors had asserted claims against the US and Canadian companies for outstanding fees and asserted that some of the intellectual property was wrongly transferred during the sale of the global business, violating SNMP's intellectual property rights. A claim has been issued in the US Bankruptcy Court for between $86 million and $200 million. SNMP sought to join the EMEA companies as third party defendants. This was rejected by the court but it was indicated that SNMP might bring a claim directly against the EMEA Companies.
- Chubb claim - a pre-action letter was received from insurers for an alleged omission to deal with a power failure at the premises of an insured party. There had been no substantial further communication or additional information provided.
- French employee claim - claim by 167 former employees against the French, Canadian and UK companies for damages (i) for alleged unfair dismissal and (ii) alleged tortious acts. The claim was for approximately €43 million.
- Tax Authority claim - the Administrators anticipated receiving claims from some or all of the local tax authorities for corporation tax following the sale of the global business. It was stated that the amount of tax would be unknown for a number of years due to the way it is calculated, but the tax authorities had been contacted to address this issue.
In 2010, the global business of the Nortel Group and the remaining intellectual property rights were sold. There were a variety of disputes with other Nortel Group entities, in particular those in the US and Canada, in relation to the allocation and division of the proceeds of sale (approximately US$7.3 billion) held in the US ("the Lockbox Proceeds"). This was resolved in 2016 by way of four interlocking conditional settlement agreements.
The Administrators could not rely on the relevant provisions of the Insolvency Rules which enable Administrators to call for Proofs of Debt and make distributions only to those who have proved, as that provision relates to unsecured debts and not to expense claims.
Previous authorities were considered as to whether the Court had jurisdiction to make such an order. It was held that it was permissible for the Court to use its power to give directions under paragraph 63 of Schedule B1 (i) to assist the Administrators in ascertaining which liabilities of the Company rank as Administration expenses and (ii) to authorise the Administrators to distribute the property of the Company to unsecured creditors who rank lower in order of priority in the statutory waterfall without regard to any claims for Administration expenses that have not been made by a specific date.
It was noted that the events to which the potential expense claims related took place many years ago, spanning from 2009-2012, and there had been ample opportunity for the potential claimants to take advice. The only exception was the Tax claim. Although the sale giving rise to the potential tax claim took place in 2010 and regular tax returns have been filed during the Administration, the tax liability remained unknown. In addition, the potential claimants were informed of this application and had the opportunity to appear.
Orders were made to inform potential claimants that any expense claims must be made on a prescribed Demand Form on or before a specified "Bar Date", being 27 October 2017 in most cases. The Administrators were ordered to write to each of the potential claimants as well as advertising in national newspapers in the relevant jurisdictions, making it clear that any claim must be made by the Bar Date after which the Administrators will be at liberty to pay a dividend to unsecured creditors. Any late expenses claims following a distribution will only be paid if the Administrators had unreserved funds available. If a late claim is received before a distribution, the Administrators should reserve for or agree to pay this.