Bankrupt Nortel’s assets to be allocated by courts, not in arbitration

Although bankrupt Nortel Networks generated $7.5 billion from liquidation of its assets and those of subsidiaries around the world, a dispute over allocation is preventing distributions to creditors.

How the assets will be allocated among the various Nortel companies and their creditors will be decided by courts, not in arbitration, according to a Dec. 6 ruling from the U.S. Court of Appeals in Philadelphia.

[Nortel once employed several thousand people at its campus in Research Triangle Park.]

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.

Mediation failed to resolve disputes about how sale proceeds should be distributed among Nortel companies around the world.

Liquidators in the U.K. contended that an agreement to allow sales of assets also included a commitment to arbitrate how proceeds should be distributed. The bankruptcy court in Delaware and the court in Canada both concluded there was no commitment to arbitrate.

In the Dec. 6 opinion, the Philadelphia appeals court looked at the agreement and it too found no commitment to arbitrate. Dividing the assets is therefore up the courts.

U.S. Bankruptcy Judge Kevin Gross previously said the allocation dispute is keeping the case “tied up in knots seemingly forever.”

Originally, the judges in the U.S. and Canada scheduled an allocation trial to begin Jan. 6. The date was pushed back several times, and is now set to begin on May 12 and continue for 19 trial days.

Reports from experts, previously due this month, were pushed back to Jan 24. Examinations of experts, once scheduled for Feb. 28, will now take place from March 17 to April 4.

The appeal is In re Nortel Networks Inc., 13-2739, U.S. Third Circuit Court of Appeals (Philadelphia).

The bankruptcy case is In re Nortel Networks Inc., 09-10138, and the parent’s Chapter 15 case is In re Nortel Networks Corp., 09-10164, both in U.S. Bankruptcy Court, District of Delaware (Wilmington).