Nortel Networks UK Ltd No. 536 of 2009 and Others v The Insolvency Act 1986
| Jurisdiction | England & Wales |
| Judge | Mr. Justice Snowden |
| Judgment Date | 27 August 2015 |
| Neutral Citation | [2015] EWHC 2506 (Ch) |
| Date | 27 August 2015 |
| Court | Chancery Division |
[2015] EWHC 2506 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
COMPANIES COURT
Royal Courts of Justice
Rolls Building, Fetter Lane
London, EC4A 1NL
Mr. Justice Snowden
In The Matters of:-
William Trower QC and Daniel Bayfield (instructed by Herbert Smith Freehills LLP) for the Administrators of the Nortel companies
Adam Al-Attar (instructed by Clifford Chance LLP) for the Comité d'enterprise (Works Council) of Nortel Networks S.A.
Hearing date: 15 July 2015
Introduction
Nortel Networks UK Limited ("NNUK") and the other Nortel companies listed above (together "the EMEA Companies") are incorporated in a variety of countries in Europe, the Middle East and Africa. The EMEA Companies formed part of the worldwide Nortel Group which operated a networking solutions and telecommunications business across multiple jurisdictions based on the development, licensing and maintenance of intellectual property.
On 14 January 2009, the (Canadian) parent company of the Nortel Group and certain of the Canadian Nortel companies (together "the Canadian Debtors") sought insolvency protection under the Canadian Companies' Creditors Arrangement Act. On the same day, the Nortel Group companies which were registered in the United States ("the US Debtors") filed for bankruptcy protection under Chapter 11 of the US Bankruptcy Code. The EMEA Companies were also all placed into administration in England by order of Mr. Justice Blackburne on the same day, the Judge being satisfied that the centre of main interests (as defined in the EC Regulation on Insolvency Proceedings (1346/2000) ("the EC Regulation")) of each of the EMEA Companies was in the United Kingdom. The joint administrators are partners in Ernst & Young LLP ("the Administrators").
On 23 July 2015 I made a number of orders in relation to the EMEA Companies as follows ("the Orders"):
i) an order pursuant to paragraph 65(3) of Schedule B1 of the Insolvency Act 1986 ("the Act") that the Administrators of NNUK be at liberty to make such distributions in accordance with Chapter 10 of Part 2 of the Insolvency Rules 1986 ("the Rules") to its unsecured non-preferential creditors as the Administrators consider appropriate;
ii) an order pursuant to Rule 2.97(2) that the Administrators of NNUK be at liberty to declare dividends notwithstanding that there might be pending applications to the court to reverse or vary a decision of the Administrators on a proof, on the basis that full provision be made for such disputed proofs;
iii) an order that the Administrators of the EMEA Companies apart from NNUK and Nortel Networks S.A. ("NNSA") be at liberty to promulgate company voluntary arrangements under the Act in substantially the terms set out in evidence filed by the Administrators; and
iv) an order that the Administrators of NNSA be at liberty to promulgate a company voluntary arrangement under the Act in respect of NNSA providing for a claims determination mechanism and such other terms as they might think appropriate.
I now give the reasons for my decision to make those Orders.
Background
After filing for insolvency protection in January 2009, the companies in the Nortel Group continued to work together in an effort to co-ordinate a global reorganization. When that proved impossible, it was decided to attempt a global sale of the businesses and assets of the Group. To facilitate that sale, an Interim Funding and Settlement Agreement ("the IFSA") was entered into on 9 June 2009 with the approval of the courts in Canada, the US and the UK. The IFSA provided that the net proceeds from the global sale would be held in escrow pending agreement or court determination as to how the proceeds should be allocated amongst the parties to the agreement who included the Canadian Debtors, the US Debtors and the EMEA Companies.
Pursuant to the IFSA, various business lines and associated assets were sold for approximately US$3.285 billion during the course of 2009 and 2010 and the residual intellectual property rights (being patents, patent applications and related rights) were subsequently sold for US$4.5 billion. The net sale proceeds, totaling approximately US$7.3 billion, were paid into escrow bank accounts in New York ("the Lockbox") in accordance with the terms of the IFSA.
Following extensive negotiations and three formal mediation processes, all of which failed, the task of determining how the monies in the Lockbox should be allocated was, by agreement of the parties to the IFSA, given to the courts in the US and Canada. An allocation protocol was approved by both courts requiring a joint trial in the Ontario Superior Court of Justice (Commercial List) and the U.S. Bankruptcy Court for the District of Delaware.
Following a 21-day trial, judgments were handed down on 12 May 2015 in Delaware by Judge Gross and in Ontario by Mr. Justice Newbould. The decisions were subject to motions seeking reconsideration and further judgments were given on 6 July 2015. The conclusion reached by the Judges was summarized by Mr. Justice Newbould in paragraph 258 of his judgment of 12 May 2015, Re Nortel Networks Corporation [2015] ONSC 2987. That paragraph was slightly modified by the judgment of 6 July 2015, and the reference to a "Debtor Estate" was clarified to be a reference to an individual debtor (i.e. company or other legal entity) rather than the Canadian Debtors, the US Debtors or the EMEA Companies as groups. As modified, paragraph 258 of the first judgment was in the following terms:
"A judgment is to go that the lockbox funds are to be allocated on a pro rata allocation basis with the following principles to govern:
(1) Each Debtor Estate is to be allocated that percentage of the lockbox funds that the total allowed claims against that Estate bear to the total allowed claims against all Debtor Estates.
(2) In determining what the claims are against the Debtor Estates, a claim that can be made against more than one Debtor Estate can only be calculated and recognized once in accordance with these reasons for judgment. Claims on bonds are to be made on the Debtor Estate of the issuer. A claim can be recognized by the Debtor Estate that guaranteed the bond, but that claim will not be taken into account in determining the claims against the Debtor Estates. If the [UK Pension Claimants] make a claim against more than one Debtor Estate, such additional claims will not be taken into account in determining the claims against the Debtor Estates for allocation purposes.
(3) Intercompany claims against a Debtor Estate are to be included in the determination of the claims against that Estate.
(4) Cash on hand in any Debtor Estate will not be taken into account in the pro rata allocation. Each Debtor Estate with cash on hand will continue to hold that cash and deal with it in accordance with its administration.
(5) An interim distribution may be allowed upon further submissions….
(6) Proposed schedules for expediting any remaining claims procedures are to be provided without delay…."
In paragraph 253 of his judgment of 12 May 2015, Mr. Justice Newbould also set out his understanding of the claims position in the various insolvencies:
"I understand that for the Canadian Debtors and the U.S. Debtors, the claims for the most part are generally known although there are some claims still unresolved….The U.K. Administrator has not yet instituted a claims procedure, apparently awaiting a determination of this allocation proceeding. In my view, the process should be undertaken now and I expect this will happen."
The Administrators subsequently wrote to the US and Canadian Courts, clarifying the position in relation to the EMEA Companies, and notifying them that I had been nominated by the Chancellor of the High Court to act as supervisory judge in relation to the administrations of the EMEA Companies. In his subsequent judgment of 6 July 2015, Mr. Justice Newbould said,
"[53] As now advised, the reason for no claims procedure having being undertaken in the U.K. was that under the U.K. Insolvency Act 1986, the Joint Administrators appointed by the English Court had no authority to commence a formal claims process until there were funds available for distribution. Nevertheless an informal claims process was undertaken in 2010 and sanctioned by the High Court of England and Wales.
[54] Following the release of the allocation decisions, an application in the U.K. was made to the Chancellor of the High Court of England and Wales for the appointment of a supervisory judge in this matter. The Chancellor has now appointed Mr. Justice Snowden, a judge of the Chancery Division of the High Court of England and Wales, as the supervisory judge in relation to the various EMEA Debtors. Justice Snowden will deal with any hearings in relation to the EMEA Debtors including contested claims and will be the appropriate judge to engage in any judicial co-operation with the Canadian and U.S. Courts that is deemed...
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