Mediation now underway in $9B Nortel bankruptcy
Published Tuesday, April 24, 2012 12:04PM EDT
Last Updated Saturday, May 19, 2012 8:08AM EDT
TORONTO - Mediation over the distribution of almost $9 billion in assets belonging to bankrupt Nortel Networks began Tuesday in one of the most complicated proceedings of its kind.
The effort at settling the myriad creditor claims from Canada, the U.S. and around the world kicked off with Ontario's top judge warning of the pitfalls of failure.
If the parties resort to litigation, Chief Justice Warren Winkler told a room full of high-priced bankruptcy lawyers, it would deplete much of the money now available to creditors, who include pensioners of the once high-flying high-tech company.
"The alternative to a mediated outcome is a lengthy litigation process," Winkler said.
"This would be a catastrophic outcome for some, and unsatisfactory for most of those affected by this case."
The bankruptcy proceedings over Nortel's business lines and intellectual property involve companies in 20 countries on every continent except Antarctica.
Besides Nortel pensioners, others looking for a share of the assets include disabled former employees, bond holders, trade creditors and governments. Legal proceedings are underway in the U.S., U.K., and Canada.
"The Nortel insolvency is one of the most complex trans-national legal proceedings in history," said Winkler, who was appointed mediator by courts in Ontario and Delaware.
"The complexity of this case would make even a conflict-of-laws professor cringe."
Winkler acknowledged the hurdles he faces, especially since the value of the claims far exceed the residual assets. In addition, two previous efforts at mediating a settlement failed.
Originally founded in Canada in 1895 as an equipment provider for Canada's telephone system, Nortel expanded into a global digital and network powerhouse starting in the mid-1980s.
By 2000, Nortel had $30 billion in annual revenues and employed nearly 93,000 people. The empire began crumbling with the burst of the "dot-com bubble" in early 2001.
In 2004, it was forced to restate its financial results due to accounting irregularities and became the target of shareholder lawsuits. Creditors finally pushed the company into bankruptcy in 2009.
Hard-hit Nortel pensioners, whose pensions have been slashed by 30 per cent in some cases, have resorted to demonstrations, legal action and pressing for tougher legislative protections.
Because no single court has the ultimate authority over the issue, Winkler warned that litigation could lead to conflicting results and endless appeals.
As a result, he said, mediation is essential to a resolution.
He promised a fresh approach -- something different from gathering all the parties together to try to hammer out a deal. Instead, he pledged to meet with the various parties individually in an effort to find common ground on which to build a settlement.
Three of Nortel's former senior executives are currently on trial in Toronto on fraud allegations.
Former CEO Frank Dunn, ex-CFO Douglas Beatty and ex-controller Michael Gollogly have pleaded not guilty to the charges related to allegedly manipulating Nortel's books and defrauding the company of $12.8 million in bonus payments.