Lawyer involved calls for international insolvency adjudication forum
|The lack of an established process for cross-border insolvencies meant the judges and parties had to make things up as they went along, says Ken Rosenberg.|
Last week’s long-awaited rulings from the U.S. and Ontario courts on how to divvy up Nortel’s assets followed an unprecedented 21-day cross-border trial in Toronto and Wilmington, Del., with a live streaming feature to allow the two proceedings to go on simultaneously.
The trial was a procedural feat with two judges sitting in both cities and witness testimonies in both Toronto and Wilmington. The Nortel proceedings under the Companies’ Creditors Arrangement Act saw $1.5 billion spent on legal and other professional fees, according to Diane Urquhart, a Mississauga, Ont., independent financial analyst who has keeping tabs on the professional bills.
The process could have been cheaper and more efficient had there been an international convention that allowed judges in “the country of central interest” to make findings regarding assets in other parts of the world, according to Rosenberg.
The lack of such a forum means there’s still money trapped in Nortel entities across Europe, he notes, adding he hopes the Nortel situation “spurs countries into finding a more efficient system.”
In the Nortel matter, the lack of an established process for cross-border insolvencies meant “the poor judges and parties had to make it up” at a great cost, says Rosenberg. “That’s my learning.”
Others say part of the lesson in Nortel was that extremely complex matters sometimes require simple solutions. In the end, judges on both sides of the border adopted a relatively simple pro-rata distribution of the assets that would put thousands of Nortel pensioners on the same footing as bondholders.
If it stands, the ruling seals a bitter six-year dispute over the allocation of Nortel’s remaining $7.3 billion in assets among creditors.
The final outcome is “in some ways surprising and in some ways not,” says Lenczner Slaght Royce Smith Griffin LLP insolvency lawyer Monique Jilesen.
“Both courts ultimately concluded that given the complexity of the case, the pro-rata allocation was the only allocation that could be reached,” says Jilesen, who suggests both courts reached “a pragmatic and practical result.”
Many had begun to lose faith in any kind of resolution, she notes. “I think a lot of observers of the case wondered whether it was going to be achievable just with the trial itself with all of the lawyers, all of the parties, two judges across the jurisdictions.”
The case showed “we can do a major, complex cross-border trials involving billions of dollars in assets,” says Jilesen.
“That’s success because from the parties’ perspective, from the stakeholders’ perspective, one wondered whether this was going to be tied up in litigation forever. And here we are with a result.”
But the result came at a huge cost, says Urquhart. “The Nortel bankruptcy process has been the most costly large bankruptcy in global history,” she says, noting professionals took in 14 per cent of the assets that were available for disbursement to creditors.
In Canada alone, professionals billed $476 million, according to Urquhart, who argues the parties should have litigated a lot sooner to save costs.
“The issue of allocation needs to litigated. I don’t disagree with that, [but] I believe that litigation process should occur at the beginning of the process, not the end,” she says.
The parties in Nortel sparred over widely different interpretations of the insolvent company’s master research and development agreement. In the end, the Ontario court adopted none of their interpretations, instead finding that the agreement didn’t govern the insolvency issue.
“The agreement in its application was intended to apply only to Nortel while it operated and not to deal with rights after Nortel and its subsidiaries stopped operating its businesses,” wrote Superior Court Justice Frank Newbould.
The court had to look beyond the agreement, including how the business operated and the intention of the parties, to arrive at a decision, says Jilesen. “It’s continuing on with earlier insolvency cases and just going back to that [principle] that the court will do what’s necessary to do justice between the parties so that we can see the insolvency court, the CCAA court, as a court that will exercise its inherit jurisdiction under the act to reach the most just result in the particular circumstances of the case.”
Although initial reports suggested the rulings meant creditors would get 71 per cent of the amounts owed to them, Jilesen says the exact payout is difficult to determine at this point since the parties will first have to deal with the money owing between creditors.
“There’s still some work to be done as you’ll see in both the judgments,” she says.
“They’ll have to apply the decision of the court and it probably remains to be seen [how much each party gets],” she adds.
“My guess is, and I don’t know [this], each party will have a slightly different percentage return because of their different positions.”
In concluding his ruling, Newbould complimented technical staff as well as lawyers on a job well done. “We were blessed with outstanding counsel on both sides of the border,” he wrote.
“In a case such as this with the amount at stake, one can understand the pressures on counsel and how those pressures could get in the way of a smooth preparation and presentation of the case. From what I could see, all acted in a professional manner that does them credit. Without that, the case could not have proceeded as well as it did.”
For more, see "Procedural feat at Nortel trial."