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Nortel: More Universalist Than Not

posted by Jay Lawrence Westbrook

Shutterstock_108750656The Canadian and US courts have now ruled in the Nortel case. (Disclosure: I served as an expert for the UK pension interests in the case.) The case was already incredibly important because of an agreement among the parties to sell the worldwide assets of the corporate group without regard to territory or corporate ownership, creating a global pool of proceeds (about $7B) for distribution in such manner as agreed by the parties or as mandated by the two courts. (The UK court was not involved at this stage, which is an interesting point for another day.) A unified worldwide sale is a central advantage of universalism, enabling the parties here to achieve much higher values than had been predicted.

However, when the parties could not agree as to distribution, the two courts were forced to decide. Ignoring many significant aspects of that process, after a joint on-line trial the two courts reached a common result. The joint trial and common result were two more extraordinary accomplishments. The common resolution is a special triumph for universalism.

The result is a pro rata distribution of the sale proceeds by estate based upon the percentage of claims allowed in each case. In other words, the allocation of the $7B in proceeds was global, but global by estate, not pro rata as to each creditor of the group. The formula produces a global distribution overall, a universalist result, but one that favors the creditors of the US company in several ways, including giving effect to an inter-company claim by the US estate against the Canadian parent and to the guarantees that certain US bondholders had from the Canadian parent. While the result falls between the positions of the parties, it is reasonably defensible in principle rather than merely being a compromise. I look forward to making a further post analyzing the result. 

Graph image from Shutterstock


Hey Jay,

Sorry to intrude on your post but I’ve waited for CreditSlips to announce the Wellness International decision.

Maybe you can answer my question: “How can the Supreme Court hold that consent cures the bankruptcy court’s authority to decide “Stern” type claims without holding that an alter-ego trust busting complaint raises a “Stern” type claim.

That is, if it is not a Stern type claim then no consent is required for the bk court to issue a final order.

Yes I read footnote #7 in the decision but it is beyond illogical.

I’m fine with the holding that “consent cures” but logic and clarity demand more.

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