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Nortel Asks Judges for Rules on Dividing $4 Billion in Cash

June 07, 2011

(Updates with comment from Nortel European attorney in third paragraph.)

June 7 (Bloomberg) -- Nortel Networks Corp.’s units in Canada and the U.S. asked the judges overseeing their bankruptcies to divide $4 billion, over the objections of the company’s European affiliates who prefer a private arbitrator.

Nortel’s North American units are seeking an unfair advantage over their European affiliates, a lawyer for the Europeans said today in U.S. Bankruptcy Court in Wilmington, Delaware.

A private arbitrator should decide how to split up the money so that “no one would be perceived to have any home court advantage,” said Derek J.T. Adler, a lawyer for 19 European Nortel units that are in bankruptcy in the U.K. They are seeking part of the $4 billion the U.S. units will have raised once they finish liquidating their major businesses later this month.

“It is not just important to do justice but to be seen to do justice,” Adler said.

Since filing for bankruptcy in the U.S., Canada and the U.K., Nortel has sold almost all of its businesses, raising about $3 billion to distribute to creditors. Later this month, Nortel’s U.S. unit will hold an auction for more than 6,000 patents, with an opening bid by Google Inc. of $900 million. That auction is the last major sale of Nortel’s assets.

Nortel was once the largest maker of telecommunications equipment in North America. The Toronto-based company filed for bankruptcy in 2009, blaming its failure on competition from lower-priced rivals and the slumping economy.

‘Fair Shake’

The European units “believe they will not get a fair shake before this court,” James Bromley, a Nortel attorney, said in court. “And that is simply unfathomable.”

The European units claim Nortel owes them C$9.8 billion ($10.2 billion), according to court papers filed in Toronto, where the parent is in bankruptcy. Judges in the U.S. and Canada may decide whether those European claims are legitimate.

The two sides disagree about whether Nortel’s North American units promised to let a private arbitrator oversee any disputes about how to split sales proceeds. Adler said courts in the U.K. and France assumed an arbitrator would split up the sale proceeds when they made bankruptcy rulings shortly after Nortel filed for court protection.

Bromley said an agreement among all of Nortel’s units that has guided the company’s liquidation doesn’t require an arbitrator.

U.S. Bankruptcy Judge Kevin Gross in Wilmington and Ontario Superior Court Judge Geoffrey Morawetz, in Toronto, are holding a joint hearing linked by video to decide whether they should oversee the division and under what rules.

Nortel’s 6 7/8 percent bonds due 2023 fell as much as 1.8 percent before closing down less than 1 percent at 27.75 cents on the dollar today, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.

The case is Nortel Networks Inc., 09-10138, U.S. Bankruptcy Court, District of Delaware (Wilmington).

--Editors: Fred Strasser, Stephen Farr

To contact the reporter on this story: Steven Church in U.S. Bankruptcy Court in Wilmington, Delaware, at

To contact the editor responsible for this story: John Pickering at

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