UK pensioners to benefit as judges order insolvent Nortel’s assets to be divided equally

Accountancy firm PwC, a financial adviser to the trustees of the Nortel UK Pension Scheme since the company’s 2009 insolvency, said that the unprecedented joint ruling by the courts could set an example in future insolvency cases involving highly integrated multinational companies. Bond investors in the US and Canada had each argued for a greater share of the company’s remaining $7.3 billion, raised from the sales of its global operations and patents.

“All too often the rights of pensioners, who have worked hard for a company all their lives, are given a lower priority than other corporate claimants,” said Jonathon Land, adviser to Nortel’s trustees at PwC. “This decision sees pensioners treated fairly.”

“We concluded that a pro rata allocation approach was the most appropriate in the circumstances. Despite opposition from the bondholders who were looking to receive interest on their original claim, we are pleased to see that the judges in both Canada and the US ruled our approach to allocation was the most appropriate,” he said.

Judges in the US Bankruptcy Court in Wilmington, Delaware and Ontario’s Superior Court of Justice published separate, but similar, judgments after a joint cross-border trial on the dispute during which the courtrooms were linked by video. They rejected conflicting models for dividing the remaining assets put forward by Nortel’s Canadian parent company and US and European subsidiaries, instead ruling that the funds should be divided based on “what is just in the unique circumstances of this case”.

“These insolvency proceedings have now lasted over six years at unimaginable expense and they should if at all possible come to a final resolution,” the Canadian court said in its judgment. “It is in all of the parties interests for that to occur.”

“The fact that Nortel ensured that legal entities were properly created and advised in the various countries in which it operated in order to meet local legal requirements does not mean that Nortel operated a separate business in each country … The bondholders have the legal right to be paid in full on their bonds. But so do all of the other creditors. Like the pensioners and other creditors, the bondholders are not secured … The issue is how the pain is to be shared,” the court said.

Each of the three entities would therefore be entitled to receive “the percentage that all accepted claims against that estate bear to the total claims against all debtor estates”, meaning that no one creditor would be repaid a larger share of its debt than any other, according to the Canadian judgment. An “interim distribution” should also be made if possible, particularly to “the predominantly elderly pensioner population and disabled employees who have endured hardship as a result of the loss of their benefits”, the judge said.

The Nortel scheme is about £2.2 billion in deficit and its 33,000 members would otherwise have been reliant on the UK’s pensions ‘lifeboat’ fund, the Pension Protection Fund (PPF), to pay them a share of the benefits to which they would otherwise have been entitled had the trustees’ claim not been successful.

“The UK pension claimants’ legal advisers and financial advisers are still in the process of digesting the detail of the rulings, and the implications for the UK pension scheme,” the trustees said in a statement. “It is too early to assess how matters will develop from here, but the present decisions obviously represent a very positive result for members of the UK scheme.”