Supreme Court hands Nortel victory in bankruptcy fight

U.K. pension regulators for a European branch of Nortel Networks Inc. won’t be permitted to appeal to the U.S. Supreme Court from an opinion in December by the U.S. Court of Appeals in Philadelphia blocking the foreign regulators from deciding whether Nortel owes $3.1 billion on underfunded pension plans.

Nortel, the once-giant communications equipment provider, is being liquidated simultaneously in the U.S., Canada and the U.K.

[Nortel once employed as many as 8,000 people in the Research Triangle Park area.]

The trustee for Nortel’s U.K. pension plan filed a claim in the U.S. bankruptcy court saying the company could be liable for as much as $3.1 billion in underfunding. Later, the pension trustee began proceedings in the U.K. that could have resulted in orders requiring further contributions to the pension plan.

Nortel notched the first victory when the bankruptcy judge halted the U.K. proceedings for being in violation of Section 362 of the U.S. Bankruptcy Code, which automatically stops actions by creditors outside bankruptcy court. The U.K. pension administrators lost again on appeal to the district court and sustained a third loss on Dec. 29 in the appeals court.

On Monday, the Supreme Court decided not to allow a further appeal.

Nortel’s victory has practical significance by removing a threat that foreign courts could determine major liabilities in the U.S. bankruptcy. Monday’s ruling from the Supreme Court also gives greater stature to the appeals court’s opinion about the primacy of the U.S. automatic stay over proceedings abroad.

The appeals court in Philadelphia concluded that the U.K. pension proceedings didn’t fit within the exception to the automatic stay allowing governmental police or regulatory actions to go forward regardless of bankruptcy. The court also ruled that neither the pension trustee nor the U.K. Board of the Pension Protection Fund was a “governmental unit” and thus couldn’t take advantage of the police and regulatory exception.

From liquidating the assets, Nortel has collected almost $9 billion for distribution to creditors. From the total, $4.5 billion came from the sale of 6,000 patents to a group including Apple Inc., Microsoft Corp., Sony Corp., Research In Motion Ltd., Ericsson AB and EMC Corp.

The Nortel companies filed for bankruptcy reorganization in January 2009 in the U.S., Canada and London. They reported $11.6 billion in consolidated assets against debt totaling $11.8 billion as of Sept. 30, 2008.