Vol 6 (2009) - Issue 3

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Pan-European Insolvency Cooperation: Re Nortel Networks SA and other companies [2009] EWHC 206 (Ch)

Introduction

In this case the High Court considered the application of the joint administrators (the ‘Administrators’) of the Nortel group of companies (the ‘Nortel Group’) to send letters of request to courts of a number of Member States in the European Community. The purpose of the letters of request was to ask various European courts to put in place arrangements under which the Administrators of the Nortel Group would be given notice of any request or application to open secondary insolvency proceedings in respect of any of the companies in administration within the Nortel Group.

The Administrators’ application was successful. The court held that it was ‘highly desirable’ that the requested assistance from the foreign courts be sought and authorised that the letters of request be sent.

The facts

The Nortel Group was a global supplier of networking solutions and the largest maker of telecom equipment, including network switching, wireless and optical systems for customers worldwide.

On 14 January 2009, Nortel Networks Corporation (the ‘Nortel’) based in Canada, the ultimate parent company of the Nortel Group, together with a number of its Canadian subsidiaries applied to the Canadian court for protection under the provisions of the Companies Creditors Act 1985. At the same time, a number of Nortel’s subsidiaries based in the US filed voluntary petitions under Chapter 11 of the US Bankruptcy Code.

On the same day, Mr Justice Blackburne at the Royal Courts of Justice made orders placing each of the companies in the Nortel Group which operated in Europe, the Middle East and Africa (the ‘Companies’) into administration in the UK. The judge also ordered that the Council Regulation (EC) 1346/2000 (on Insolvency Proceedings) (the ‘Regulation’) applied, meaning that the English administration proceedings were the main proceedings pursuant to Article 3 of the Regulation. A number of further orders were made authorising the Administrators to:

(i) make payments out of the Companies’ assets to employees and preferential creditors of the relevant Companies corresponding to the amounts they would receive if the secondary insolvency proceedings were to be instigated in other Member States; and

(ii) apply to the relevant judicial authorities in any other country for such assistance as the Administrators considered relevant for the performance of their functions.

Further to the UK administration proceedings, notification of the appointment of the Administrators was sent to the creditors and suppliers of the Companies as required by Article 40 of the Regulation. Enclosed with the notifications were reorganisation proposals relating to the Nortel Group to be put to the creditors of each of the Companies for their consideration and approval by 24 March 2009.

The Administrators argued that, due to highly integrated nature of the trading relationships in the Nortel Group, only a coordinated reorganisation of the entire Nortel Group would enable the maximisation of value for creditors of each of the Companies. Therefore, the Administrators wished to avoid secondary proceedings being opened against any of the Companies as this, the Administrators contended, was likely to impede the global restructuring plan and reduce the overall value raised for the benefit of the Companies’ creditors.

The application made by the Administrators was therefore made with a view to obtaining assistance from the courts of a number of Member States requesting such courts to:

(i) put in place arrangements under which the Administrators would be informed of any request or application for the opening of secondary insolvency proceedings in those jurisdictions in relation to any of the Companies; and

(ii) provide the Administrators with an opportunity to be heard on any such application.