[Home] [Databases] [World Law] [Multidatabase Search] [Help] [Feedback] | ||
England and Wales High Court (Chancery Division) Decisions |
||
You are here: BAILII >> Databases >> England and Wales High Court (Chancery Division) Decisions >> Nortel group, Re (Global Settlement) [2016] EWHC 2769 (Ch) (03 November 2016) URL: http://www.bailii.org/ew/cases/EWHC/Ch/2016/2769.html Cite as: [2016] WLR(D) 574, [2017] Bus LR 590, [2016] EWHC 2769 (Ch) |
[New search] [Context] [View without highlighting] [Printable RTF version] [Buy ICLR report: [2017] Bus LR 590] [View ICLR summary: [2016] WLR(D) 574] [Help]
Neutral Citation Number: [2016] EWHC 2769 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
COMPANIES COURT
Royal Courts of Justice
Rolls Building, Fetter Lane
London, EC4A 1NL
Date: 3 November 2016
Before:
MR. JUSTICE SNOWDEN
IN THE MATTERS OF:-
NORTEL NETWORKS UK LIMITED |
No. 536 of 2009 |
NORTEL NETWORKS HISPANIA SA |
No. 535 of 2009 |
NORTEL NETWORKS (AUSTRIA) GmbH |
No. 537 of 2009 |
NORTEL NETWORKS SRO |
No. 538 of 2009 |
NORTEL NETWORKS S.A. |
No. 539 of 2009 |
NORTEL NETWORKS ENGINEERING SERVICE KFT |
No. 540 of 2009 |
NORTEL NETWORKS (IRELAND) LIMITED |
No. 541 of 2009 |
NORTEL GmbH |
No. 542 of 2009 |
NORTEL NETWORKS FRANCE SAS |
No. 544 of 2009 |
NORTEL NETWORKS OY |
No. 545 of 2009 |
NORTEL NETWORKS ROMANIA SRL |
No. 546 of 2009 |
NORTEL NETWORKS PORTUGAL SA |
No. 547 of 2009 |
NORTEL NETWORKS AB |
No. 548 of 2009 |
NORTEL NETWORKS INTERNATIONAL FINANCE & HOLDING BV |
No. 549 of 2009 |
NORTEL NETWORKS NV |
No. 550 of 2009 |
NORTEL NETWORKS SLOVENSKO |
No. 551 of 2009 |
NORTEL NETWORKS S.P.A. |
No. 552 of 2009 |
NORTEL NETWORKS BV |
No. 553 of 2009 |
NORTEL NETWORKS POLSKA SP.Z.O.O |
No. 554 of 2009 |
AND IN THE MATTER OF THE INSOLVENCY ACT 1986
- - - - - - - - - - - - - - - - - - - - -
William Trower QC and Alex Riddiford (instructed by Herbert Smith Freehills LLP) for the Administrators of each of the above-named companies
Michael Todd QC and Ben Shaw (instructed by Skadden Arps Slate Meagher & Flom (UK) LLP) for the Conflict Administrator of Nortel Networks S.A.
Hearing date: 31 October 2016
- - - - - - - - - - - - - - - - - - - - -
Judgment Approved
MR. JUSTICE SNOWDEN:
1. This is an application by the administrators of 19 Europe, Middle East and Africa (“EMEA”) companies in the Nortel group (the “Administrators”). The Administrators seek directions from the court that they be at liberty to perform and procure that the companies perform a global settlement of the vast majority of disputes that have arisen in relation to the affairs of the Nortel group and the distribution of the proceeds of sale of its assets which amount to about US$7.3 billion (“the Global Settlement”).
3. The background to the collapse of the Nortel group and the litigation that has led to the Global Settlement is complex. I shall simply sketch some of the more salient points for the purposes of this judgment.
The insolvency of the Nortel group
4. The Nortel group operated a global networking solutions and telecommunications business through more than 130 subsidiaries located in more than 100 countries. Nortel Networks Corporation, a publicly-traded Canadian company, was the ultimate parent company of the group, and Nortel Networks Limited was the primary Canadian operating company (together with a number of their subsidiaries, the “Canadian Debtors”). The Nortel group also included a group of US entities headed by Nortel Networks Inc, (“the US Debtors”) and a group of entities based in the EMEA regions. The EMEA entities included in particular Nortel Networks UK Limited (“NNUK”) (an English company), Nortel Networks SA (“NNSA”) (a French company) and Nortel Networks (Ireland) Limited (“Nortel Ireland”) (an Irish company).
5. The Nortel group collapsed in 2009. The Canadian Debtors and the US Debtors went into insolvency proceedings or filed for bankruptcy protection, and on 14 January 2009 the Administrators were appointed by this court to 19 of the EMEA entities (“the EMEA Companies”) on the basis that their COMIs were in the UK. The Administrators are all partners or executive directors of Ernst & Young.
The sale of the global Nortel businesses
8. 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 reorganisation. 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.
9. 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 of about US$7.3 billion were paid into escrow bank accounts in New York (“the Lockbox”) in accordance with the terms of the IFSA.
The current asset position and the debts of the EMEA Companies
The Allocation Dispute
12. 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 between the various Nortel entities was, by agreement, 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 (“the Allocation Trial”).
14. The US Debtors argued that the value of the Nortel group's IP came from the ability to exploit it for profit in accordance with the licences granted by the group. As the US was the biggest market and generated the greatest share of global revenues, the US Debtors argued that they should receive the greatest portion of the sale proceeds.
15. The EMEA Companies argued that the IP belonged beneficially to those entities which had contributed to its creation, and that the value of the respective ownership interests should be measured by reference to the amounts spent on research and development over the relevant years by each Debtor. The EMEA Companies also argued for an allocation to be given in respect of separate categories of assets (particularly, customer assets and fixed assets) that had been sold, and not just in respect of IP. This was significant for many of the EMEA Companies which were not involved in the development of IP but which simply distributed or sold products (so-called Limited Risk Entities or “LREs”). In contrast, the US Debtors and Canadian Debtors tended to argue solely by reference to the various Debtor groupings collectively and were unclear as to what allocation, if any, would be due to the EMEA Companies other than NNUK, NNSA and Nortel Ireland (the so-called Residual Profit Entities or “RPEs”).
16. The Judgments of Judge Gross in Delaware and Mr. Justice Newbould in Ontario were handed down on 12 May 2015 (“the Allocation Judgments”). Both Judges rejected the approaches promulgated by the US Debtors, Canadian Debtors and EMEA Companies and instead ordered that the Lockbox should be split in accordance with a “Modified Pro Rata” allocation mechanism calculated by reference to the percentage that “Allowed Claims” against each debtor’s estate bear to the total Allowed Claims against all of the individual Nortel group entities. In particular, the Judges held that for the purposes of allocation,
i) a claim that can be made against more than one individual Nortel Debtor can only be calculated and recognized once: therefore,
a) claims on bonds issued by the Canadian Debtors and guaranteed by the US Debtors will only be recognized in the Canadian Debtors’ estate as the issuer of the bonds for allocation purposes; and
b) the debt claimed to be due from NNUK to the trustees of the occupational pension scheme of which NNUK was the principal employer (“the NNUK Pension Scheme”) pursuant to section 75 of the Pensions Act 1995 shall be included in the allocation calculation; but any liability which may become due from any other EMEA Debtor company as a result of an exercise of the UK Pensions Regulator's powers under sections 43 to 51 of the Pensions Act 2004 to issue a financial support direction (“FSD”) or a contribution notice ("CN") in relation to the NNUK Pension Scheme deficit will not be included in the pro rata allocation calculation;
ii) inter-company claims are to be included in the calculation; and
iii) cash in hand is to be excluded from the calculation.
17. In very broad terms, the primary arguments put forward by each of the EMEA Companies, US Debtors and Canadian Debtors at the Allocation Trial and the Modified Pro Rata allocation decided upon by the Judges have been estimated by the Administrators as likely to result in the following financial outcomes for each of the main Debtor groupings (taken as a whole).
Basis for allocation |
Approximate Allocation of Lockbox Proceeds (%) |
||
EMEA |
Canada |
US |
|
EMEA theory |
18.2 |
31.8 |
49.9 |
Canada theory |
4.1 |
82.2 |
13.7 |
US theory |
16.8 |
10.6 |
72.6 |
Modified Pro Rata |
22.4 |
62.9 |
14.7 |
|
Approximate allocation of lockbox (US$ million) |
||||
Basis for allocation |
Canadian Debtors |
US Debtors |
NNUK |
Other EMEA Companies |
NNSA |
EMEA Cos’ Position |
2,333 |
3,669 |
630 |
271 |
434 |
US Debtors’ Position |
777 |
5,329 |
531 |
365 |
335 |
Canadian Debtors’ Position |
6,031 |
1,005 |
98 |
30 |
173 |
Modified Pro Rata Position |
4,632 |
783 |
1,653 |
150 |
118 |
20. Having considered the results of their modelling with their legal advisers, the Administrators considered whether it was in the interests of the EMEA Companies to appeal. Some of the EMEA Companies were projected to receive an amount under the Modified Pro Rata approach which was as good as, or better than, the outcome for which they had contended (e.g. NNUK and Nortel Poland) whereas other EMEA Companies were projected to receive a lower outcome than they had argued for (e.g. NNSA, Nortel Ireland and Nortel Germany).
23. The second exception was Nortel Ireland, which although doing rather better than would have been the case under the Canadian Debtors’ arguments, would likely have fared better under either the EMEA Companies’ own arguments or under the US Debtors’ arguments. I shall return to consider the position of Nortel Ireland separately below.
26. In Canada, a motion for leave to appeal had also been made by the US Debtors and NNSA to the Ontario Court of Appeal against the judgment of Mr Justice Newbould. On 3 May 2016, the Ontario Court of Appeal rejected the motion for leave to appeal. In its judgment, [2016] ONCA 332, the Court of Appeal noted that the Nortel insolvency proceedings had lasted more than seven years during which more than 6,800 former Nortel employees or pensioners had died and over $1 billion had been incurred in costs. After analysing and dismissing the intended challenges to Mr. Justice Newbould’s judgment, the Court of Appeal concluded, at paragraphs 98-103,
“[98] This brings us to the final consideration: progress. Repeatedly, the parties have been encouraged to resolve their differences, but without success. For instance, in a 2011 decision, In re Nortel Networks, Inc., 669 F.3d 128, the Third Circuit Court of Appeals admonished the parties at p. 143:
‘We are concerned that the attorneys representing the respective sparring parties may be focusing on some of the technical differences governing bankruptcy in the various jurisdictions without considering that there are real live individuals who will ultimately be affected by the decisions being made in the courtrooms. It appears that the largest claimants are pension funds in the U.K. and the United States, representing pensioners who are undoubtedly dependent, or who will become dependent, on their pensions. They are the Pawns in the moves being made by the Knights and the Rooks…’
[99] Former Chief Justice Winkler also encouraged the parties to find a way to resolve this matter. In April 2012, he warned about the “prospect of additional delays and the potential for conflicting decisions” if the parties failed to reach a negotiated settlement.
[100] Numerous mediations have been ordered but have failed.
[101] In the Annual Review of Insolvency, Kevin P. McElcheran described Nortel as a case that has become “an emblem of waste and dysfunction in a system intended to foster consensus based solutions to commercial insolvency”, noting that it has “eclipsed all previous Canadian cases in both duration and expense”: 2014 Ann. Rev. Insolv. L. 24 at p. 24. And that was in 2014.
[102] Consistent allocation decisions have been issued by the Canadian and U.S. courts. A further appeal proceeding in Canada would achieve nothing but more delay, greater expense, and an erosion of creditor recoveries. There are asymmetric appeal routes in Canada and the U.S. However, we do not accept that the separate appeal proceedings in the U.S. somehow diminish the need to bring these proceedings in Canada to a conclusion. In our view, any additional step is a barrier to progress.
[103] Furthermore, the fact that this case is a liquidation and not a restructuring does not render delay immaterial, where so many individuals and businesses continue to await a resolution of this proceeding. The potential of an interim distribution, remote or otherwise, does not alter this reality….”
The Global Settlement
28. Although the earlier rounds of mediation had not been successful, after the decision of the Ontario Court of Appeal, a further mediation was held between the parties on 2 and 3 June 2016. This time, an over-arching settlement was agreed in principle which was intended to settle all of the outstanding claims (both present and future) between the EMEA Companies and other entities within the Nortel Group; between the EMEA Companies and the NNUK Pension Scheme and the UK Pensions Regulator; and between the EMEA Companies inter se.
The Allocation Settlement
30. The Allocation Settlement settles the dispute regarding the division of the funds in the Lockbox. The principal effect of the Allocation Settlement is that the Lockbox monies shall be released to the relevant Nortel Group entities (including to each of the EMEA Companies) in set % proportions: the Canadian Debtors will receive about 57.1%, the US Debtors about 24.4% and the EMEA Companies the remaining 18.5%. Among the EMEA Companies, NNUK will receive about 14%, NNSA will receive a fixed amount of US$220 million (being about 3%) and the other EMEA Companies will receive a total of about 1.5% of the Lockbox monies.
31. Under the Allocation Settlement, it is also agreed that no party will have any claim (whether by way of contribution, indemnity or otherwise) against any other Debtor in respect of any liability due or which may become due to SNMP Research International, Inc. and SNMP Research Inc. (together "SNMP"). SNMP filed a complaint on 2 November 2011 against various US Nortel entities claiming infringement of intellectual property rights, to which all of the Companies have been joined by way of a contribution claim. The effect of the Allocation Settlement is that the EMEA Companies shall not face any liability for the SNMP Claim save in the event that SNMP chooses to bring claims directly against them. If such claims are brought, the Joint Administrators intend to argue that such claims should be brought before this court and will be contested.
1. Company |
Anticipated Allocation (US$k) |
|
Modified Pro Rata |
Settlement |
|
NNUK |
1,352,901 |
1,017,408 |
Nortel Ireland |
49,128 |
39,701 |
Nortel Poland |
7,972 |
6,442 |
Nortel Hungary |
1,164 |
941 |
Nortel Czech |
2,315 |
1,871 |
Nortel Slovakia |
883 |
713 |
Nortel Romania |
437 |
353 |
Nortel Finland |
39 |
31 |
Nortel Germany |
26,800 |
21,657 |
Nortel France |
4,812 |
3,888 |
Nortel Italy |
6,585 |
5,322 |
Nortel Spain |
10,512 |
8,495 |
Nortel Belgium |
4,827 |
3,901 |
Nortel Netherlands |
11,763 |
9,506 |
Nortel Austria |
1,047 |
846 |
Nortel Portugal |
1,064 |
860 |
Nortel Sweden |
567 |
518 |
Nortel Int. Finance |
3,395 |
2,743 |
NNSA |
156,498 |
220,00 |
The Pensions Settlement
The Intra-EMEA Settlement
36. The Intra-EMEA Settlement serves to settle various matters between the EMEA Companies themselves. These include (a) the apportionment of the Administrators’ common costs pro rata to the Allocation Settlement among the EMEA Companies; (b) the issue of “top-up” payments to be made by NNUK to some of the other EMEA Companies to compensate them for having continued to trade unprofitably after going into administration in order to facilitate the advantageous global sale of the Nortel group’s assets; and (c) the release of restitutionary claims that have been asserted against NNUK by the other EMEA Companies (apart from Nortel Finland and Nortel Romania) who faced a potential liability to the NNUK Pension Scheme.
The NNSA Settlement
37. The NNSA Settlement settles the claims: (a) between NNSA and the other EMEA Companies; and (b) between the NNSA Main Proceeding and the NNSA Secondary Proceeding. In particular it settles a dispute currently being litigated in the Versailles Commercial Court as to which of NNSA's assets constitute NNSA Main Proceeding assets and which constitute NNSA Secondary Proceeding assets. That dispute has already resulted in one decision of the CJEU: see Comite d’enterprise de Nortel Networks SA v Rogeau, C-649/13, [2016] QB 109. This dispute has potential significance for the payment of preferential claims in the NNSA Secondary Proceeding that would not rank as preferential in the NNSA Main Proceeding. The compromise reached is that after payment of a number of specified items, the US$220 million to be received by NNSA from the Lockbox will be split 50/50 between the NNSA Main and Secondary Proceedings.
38. One set of claims not being settled by the NNSA Settlement are a number of claims by French employees of NNSA which are pending before various French courts against a number of Nortel entities including NNUK. These claims seek damages for alleged unfair dismissal and as a result of alleged tortious acts. Some of the employees have also sought to prove in the relevant administrations. These employee claims are being resisted by the Administrators and by the liquidator in the NNSA Secondary Proceeding and will continue to be litigated in France. It has, however, been agreed that the liquidator in the NNSA Secondary Proceeding shall not enter into any settlement agreement in respect of such claims without the consent of the Administrators in the NNSA Main Proceeding and NNUK, and various terms have been agreed to ensure the co-ordination of the handling of the claims.
Notice of this application
40. In particular, the day after the Global Settlement was signed on 12 October 2016, notice was posted on the Nortel website and emails were sent to the creditors’ committees of the various EMEA Companies (save Nortel Czech Republic, Nortel Finland, Nortel Hungary, Nortel Netherlands and Nortel International Finance where there had been inadequate creditor engagement to enable a committee to be formed). That notice and emails indicated that a hearing before this court would be required, and at least some of the creditors’ committees requested sight of the application and evidence in support.
The law
45. In MF Global UK Ltd [2014] EWHC 2222 (Ch) at [41], Mr. Justice David Richards was asked to authorise a settlement agreement to compromise claims by the company to assets said to be held on its own account, which were also said to be held by the company on trust for its own clients. He addressed the approach to be taken by administrators when seeking to compromise the company’s own claims as follows:
“[41] … In commercial matters, administrators are generally expected to exercise their own judgment rather than to rely on the approval or endorsement of the court to their proposed course of action: see In re T & D Industries plc [2000] 1 WLR 646. While the compromise of claims raising difficult legal issues may not be on all fours with a purely business decision, administrators commonly exercise the power of compromise without recourse to the court and in general apply to the court for directions only if there are particular reasons for doing so: see In re Lehman Bros International Europe [2014] BCC 132.”
“The second category is where the issue is whether the proposed course of action is a proper exercise of the trustees' powers where there is no real doubt as to the nature of the trustees' powers and the trustees have decided how they want to exercise them but, because the decision is particularly momentous, the trustees wish to obtain the blessing of the court for the action on which they have resolved and which is within their powers. Obvious examples of that, which are very familiar in the Chancery Division, are a decision by trustees to sell a family estate or to sell a controlling holding in a family company. In such circumstances there is no doubt at all as to the extent of the trustees' powers nor is there any doubt as to what the trustees want to do but they think it prudent, and the court will give them their costs of doing so, to obtain the court's blessing on a momentous decision. In a case like that, there is no question of surrender of discretion and indeed it is most unlikely that the court will be persuaded in the absence of special circumstances to accept the surrender of discretion on a question of that sort, where the trustees are prima facie in a much better position than the court to know what is in the best interests of the beneficiaries.”
47. The instant case is, in my judgment, just such a case. In signing the documents comprising the Global Settlement, the Administrators and the Conflict Administrator have already decided that the Global Settlement is in the best interests of each of the EMEA Companies and their creditors. They do not propose to surrender the exercise of their discretion in that regard to the court, but they seek the approval of the court because of the great significance of the Global Settlement in the context of the administrations of each of the EMEA Companies. Given the size and complexity of the affairs of the Nortel group and the amounts in the Lockbox, there can, in my judgment, be no doubt that the execution of the Global Settlement is a truly momentous decision.
“The court's function where there is no surrender of discretion is a limited one. It is concerned to see that the proposed exercise of the trustees' powers is lawful and within the power and that it does not infringe the trustees' duty to act as ordinary, reasonable and prudent trustees might act, ignoring irrelevant, improper or irrational factors; but it requires only to be satisfied that the trustees can properly form the view that the proposed transaction is for the benefit of beneficiaries or the trust estate and that they have in fact formed that view. In other words, once it appears that the proposed exercise is within the terms of the power, the court is concerned with limits of rationality and honesty; it does not withhold approval merely because it would not itself have exercised the power in the way proposed. The court, however, acts with caution, because the result of giving approval is that the beneficiaries will be unable thereafter to complain that the exercise is a breach of trust or even to set it aside as flawed; they are unlikely to have the same advantages of cross-examination or disclosure of the trustees' deliberations as they would have in such proceedings. If the court is left in doubt on the evidence as to the propriety of the trustees' proposal it will withhold its approval (though doing so will not be the same thing as prohibiting the exercise proposed). Hence it seems that, as is true when they surrender their discretion, they must put before the court all relevant considerations supported by evidence. In our view that will include a disclosure of their reasons, though otherwise they are not obliged to make such disclosure, since the reasons will necessarily be material to the court's assessment of the proposed exercise.”
Similar (albeit expanded) observations appear in the current (19th) edition of Lewin on Trusts at paras 27-079 to 27-081. Reference can also be made to the decision of Mr. Justice Henderson in Hughes v Bourne [2012] WTLR 1333 at paragraph 16.
50. In these respects the approach of the court will mirror the attitude which the court would take to a subsequent challenge to the decision by a creditor: see e.g. Re Longmeade Limited [2016] EWHC 356 (Ch) at paragraphs 61-65. But having regard to the fact that its approval will prevent subsequent challenge, the court will require the administrator to put all relevant material before it, including a statement of his reasons, and the court will not give its approval if it is left in any doubt as to the propriety of the proposed course of action.
The decision to enter into the Global Settlement
51. In the instant case, consistent with the requirements for full disclosure to the court, I have had the benefit of very full evidence from one of the Administrators, Mr. Alan Bloom, who has taken particular responsibility for the interests of NNUK in the settlement negotiations. I have also had similarly full evidence from the Conflict Administrator of NNSA, Mr. Stephen Taylor. In addition, Mr. Bloom has exhibited a letter from the other Administrator of Nortel Ireland, Mr. David Hughes, dealing with its particular position. Further witness statements were also produced from Mr. Stephen Harris, the Administrator who has taken particular responsibility for the interests of the other EMEA Companies, dealing with their particular positions.
52. In addition, I have been supplied with a number of confidential documents including projected outcome statements for EMEA Companies and various pieces of legal advice provided to the Administrators by their lawyers in the relevant jurisdictions, namely England, Canada, the US and France. It is particularly to be noted that the Administrators, the Conflict Administrator and Mr. Hughes have had separate advice from different law firms dealing with the position of NNUK and the EMEA Companies, the position of NNSA in relation to the Allocation Dispute, and the position of Nortel Ireland respectively. Among other things, the legal advice given analyses the likely course of the appellate stages of the Allocation Dispute in Canada and the US, and of the litigation between the NNSA Main and Secondary Proceedings if the Global Settlement were not to become effective. I shall, for obvious reasons, be making an order in due course preserving the confidentiality of that material, at least until after the Global Settlement has become effective and the Lockbox proceeds have been distributed.
56. I will, therefore, confine myself to the following core points.
59. Whilst the outcome of the appeal to the Third Circuit may well be that the decision of Judge Gross is upheld, there is nevertheless a risk that the Third Circuit might overrule his decision and adopt the argument advanced by the US Debtors. Whilst that outcome would potentially favour Nortel Ireland, it would provide little marginal advantage to many of the other EMEA Companies, and any variation to the Modified Pro Rata approach would be to the substantial disadvantage of NNUK.
63. This leads to the third point that echoes the views of the Ontario Court of Appeal to which I have referred above. The Nortel insolvencies have been going on at great expense for over seven years, with no return to creditors. Any continued litigation over the allocation of the Lockbox proceeds is likely to take several more years and waste substantial further legal and professional costs. There is considerable force in the point that the novel issues raised in the Allocation Dispute have been considered by courts in different jurisdictions, and that after having heard detailed legal arguments, the two judges have managed to agree on what they regard as an appropriate and fair result. The various parties have then used that as a starting point to arrive at a consensual solution to virtually all of the issues in what is undoubtedly a highly complex cross-border case.
65. Fourthly, and in relation to the EMEA Companies other than NNUK, NNSA and Nortel Ireland, this latter point is reinforced by a consideration of the return that the Administrators anticipate is likely to be paid to the unsecured creditors of those companies as a result of the Global Settlement.
66. In that regard, in addition to the amounts that are expected to be received from the Lockbox, as I noted above, the Intra-EMEA Settlement also provides for a number of the EMEA Companies to receive what has been referred to as a “top-up payment” from NNUK. This payment will be made to those EMEA Companies that would have been better off if they had ceased to trade and gone into liquidation immediately, but which continued to trade on the basis that they would benefit from the enhanced recoveries from the global sale of the Nortel group’s assets. The “top-up” payment will be the lesser of the amount needed to ensure that the unsecured creditors of those companies will be paid 100p in the £ (i.e. excluding interest) or the amount that will (after receipt of any monies from the Lockbox) restore the “deemed cash” position of those companies (including inter-company receivables) to what it was at 31 December 2009.
67. Whilst it might be said (and the Administrators acknowledge) that a “top-up” payment ought to be made to the EMEA Companies concerned in any event so as to ensure that they do not end up worse off as a result of having continued to trade for the overall benefit of the sales of the Nortel group’s IP, it is nevertheless of benefit to the EMEA Companies in question for that to be agreed, and of course the Global Settlement means that NNUK will shortly have the money from the Lockbox to make such payments.
68. According to the amended figures produced by the Administrators, the consequence of the “top-up” under the Intra-EMEA Settlement and the Allocation Settlement is that all of the relevant EMEA Companies are anticipated to be able to pay their creditors 100p in the £ on their debts (i.e. excluding interest). That includes Nortel Finland, in relation to which there was initially the suggestion that it would only return about 37p in the £ to creditors, but where, following a close examination of the evidence at the hearing, the Administrators revisited their projections and discovered that an intra-group receivable had wrongly been excluded from their computations.
70. Accordingly, the combined result of the Allocation Settlement and the top-up payments under the Intra-EMEA Settlement (where applicable) is that it is anticipated by the Administrators that all of the EMEA Companies, except for NNUK, Nortel Ireland and NNSA, will return 100p in the £ to their unsecured creditors and some may also pay a commercial rate of interest. This is plainly a result that reasonable creditors are likely to find acceptable, albeit that it has taken seven years to get there.
71. Having made these general remarks, I therefore turn to consider briefly the particular positions of NNUK, Nortel Ireland and NNSA.
73. Nortel Ireland For Nortel Ireland, its estimated outcome under the Modified Pro Rata approach was near to the worst of its potential outcomes. It would only have fared worse under the argument put forward by the Canadian Debtors, and it would fare much better if the argument of the US Debtors was adopted. Whilst that might suggest that the interests of Nortel Ireland would be best served if it was to support the US Debtors on their appeal to the US Courts and to reject the Global Settlement, there are two significant counterbalancing factors in addition to the general points to which I have referred above.
74. The first is that in the absence of the Global Settlement, Nortel Ireland is at risk of being hit with a substantial FSD in relation to the deficit in the NNUK Pension Scheme. Unlike many of the other EMEA Companies, Nortel Ireland was a significant trading entity which had a complex relationship with NNUK. As a result there is a significant risk that it might be asked to make a substantial contribution to the deficit in the NNUK Pension Scheme. Any such FSD claim would dilute the returns to its other creditors. The Administrators evidence is that it is this risk that has prevented Nortel Ireland being able to pay any substantial dividends to its creditors. The Global Settlement effectively removes that risk.
75. The second is that on the current estimates produced by the Administrators, and on the assumption that there is no FSD or CN issued against Nortel Ireland, the unsecured creditors of Nortel Ireland can expect to be paid in excess of 75% of their debts. Whilst not full payment, that is nevertheless a significant return, and one that makes the potential incremental benefits of rejecting the Global Settlement and hoping that the US Debtors are successful on appeal, seem far more of a gamble.
76. Taking these factors into account, I think that the Administrators, and in particular Mr. Hughes who has taken particular responsibility for the interests of Nortel Ireland and has been separately advised in this respect, are acting entirely rationally in reaching the conclusion that the Global Settlement is in the best interests of Nortel Ireland and its creditors.
Conclusion
80. For the reasons that I have summarised above, I consider that I should, in the exceptional circumstances of the Nortel cases, and having regard to the momentous nature of the decision, give the Administrators and the Conflict Administrator the directions that they seek, approving and authorising them to implement the Global Settlement.
81. In doing so, I respectfully endorse the sentiments of the Ontario Court of Appeal to which I have referred and commend the parties for arriving at a commercial solution which, subject to obtaining approval in Canada and the US, now gives the creditors of the various Nortel estates a real prospect of a recovery on their long outstanding debts.