Nortel Networks Corp. has been granted protection by an Ontario Superior Court judge from its creditors under the Companies' Creditors Arrangement Act.

A lawyer for Nortel said in court that the bankruptcy protection was necessary because the company was quickly burning through its cash reserves.

Nortel has also filed for Chapter 11 bankruptcy protection in the United States, the company announced Wednesday. It is expected to file for protection in Europe in the near future.

The move comes just one day before the telecom firm was due to repay a $107-million interest debt on bonds, which would have amounted to about 10 per cent of the company's North American cash reserves.

But the company is vowing to stay alive as a smaller operation, by ridding itself of non-core businesses and restructuring itself to deal with the North American recession.

The moves mean more jobs will likely be shed from its 30,000 global workforce. The filing also will affect the company's sponsorships, but Nortel says it remains committed to sponsoring the 2010 Winter Olympics in Vancouver.

Nortel is also a major sponsor for the 2012 Summer Olympics in London.

Once Canada's most valuable company, Nortel stocks traded as high as $124.50 a share during the tech boom in 2000.

On Wednesday, it had dropped 24.5 cents to close at 12 cents on the TSX, off from a 52-week high of $14.  

"People who are close to the situation are saying to us that although there is a great deal of equity in the company the possibility of it staying together as the Nortel Networks we knew is fairly slim," BNN's Michael Kane reported Wednesday.

"We're likely going to see it sold off in bits and pieces."

Ian Lee, director of the MBA program at Carleton University's Sprott School of Business, told CTV Newsnet that he doesn't think investors are going to see a return from Nortel.

"I think you can them as wallpaper in your rec room," Lee said, referring to Nortel stock certificates. "I don't mean to be flippant but I don't think the investors are going to see a return."

While many on Bay St. are not confident for a Nortel revival, the company's CEO remains bullish on its prospects.

"There are very significant changes happening in a very large industry, we refer to this as the world of hyper-connectivity," Nortel CEO Mike Zafirovski said. "I believe we are very well positioned to do very well to profit from those significant changes in the marketplace."

In an earlier press release Zafirovski called the bankruptcy filing "imperative" for the company's survival.

"Nortel must be put on a sound financial footing once and for all," Zafirovski said in a press release.

"These actions are imperative so that Nortel can build on its core strengths and become the highly focused and financially sound leader in the communications industry that its people, technology and customer relationships show it ought to be."

The company's board of directors reportedly met in Toronto Tuesday to discuss the decision.

In Wednesday's press release, Nortel said day-to-day operations are expected to continue without interruption.

"The global financial crisis and recession have compounded Nortel's financial challenges and directly impacted its ability to complete this transformation," said the press release. "Nortel is taking this action now, with a $2.4 billion cash position, to preserve its liquidity and fund operations during the restructuring process."

Political reaction

In Ottawa, Industry Minister Tony Clement said the federal government was willing to provide financing to assist during the company's restructuring phase.

"The government of Canada appreciates the importance of the telecommunications industry to our economy and will continue to work with Nortel during its restructuring through Export Development Canada," Clement said in a statement.

"EDC has agreed to provide up to $30 million in short-term financing through its existing bonding facility and is open to discussing with Nortel post-filing financing in conjunction with other financial institutions."

Meanwhile, Ontario Premier Dalton McGuinty said the province has $2 billion available in various programs to help struggling companies. However, he said Nortel hasn't applied for any money yet.

"We'll see how things shake out in the end and what it means specifically for jobs in Ontario," McGuinty said Wednesday.

"I remain hopeful that Nortel will experience ultimately a renaissance of some kind and that will be of benefit to the Ontario economy and to Ontario workers."

After the telecom bubble burst, the company failed to re-establish itself and was plagued by accounting scandals and weakening demand.

"It has been a changing landscape that Nortel has been unable to adjust to," Kane said.

Still, Peter A. Chapman, of Bankruptcy Creditors' Service Inc. in Pennsylvania, said Nortel could survive despite Wednesday's move.

"There's every indication at this early juncture that Nortel will survive, confirm Chapter 11 and CCAA plans, and successfully emerge from its restructuring," he said in an email to The Canadian Press.

"The Chapter 11 and CCAA proceedings will provide Nortel with the ability to sell useless assets, walk away from every bad business deal, improve its operations and operating margins, and knock its $11 billion debt load down to a reasonable level."

Nortel employs about 32,000 people around the world, including several thousand in Ottawa and Toronto.

Chapman said shareholders will likely lose whatever money they had invested in the company.

With files from The Canadian Press