An Ontario Superior Court judge has granted Nortel Networks Corp. protection from its creditors under the Companies' Creditors Arrangement Act.
Shortly after noon Wednesday, Mr. Justice Geoffrey Morawetz told a court room of about 30 lawyers that he was approving Nortel's application for protection. No creditors voiced any objection to the company's filing.
Derrick Tay, an Ogilvy Renault LLP lawyer representing the company, said the bankruptcy filing was necessary because Nortel was quickly burning through its cash reserves.
Placing all the company's assets in Canada, Europe and the United States in court protection, Mr. Tay said, “allows the company in one comprehensive move to do all that is necessary for a full financial and operational restructuring.”
Nortel's U.S. subsidiary filed for bankruptcy protection under Chapter 11 of the U.S. bankruptcy code and it plans to file for protection in Europe in the near future.
Nortel's board of directors signed off on the decision to seek creditor protection at a meeting Tuesday night after sales began to slide and pressure from some key suppliers mounted.
The telecom-hardware manufacturer failed to conclude a deal to sell one of its divisions that was put up for sale in September, and had faced the prospect of paying $107-million (U.S.) of interest on its debts on Thursday.
Analysts have speculated that the company could now be broken up into pieces and sold at fireside prices. But in an interview, Mike Zafirovksi, Nortel's chief executive officer, said now that the company is protected from creditors, there is no longer a burning need to sell assets.
“A break-up is not a top priority for the business. On the contrary, it's to be able to come out the other side as a nimbler, more focused, successful technology company,” he said.
In a news release, Nortel said: “The company's normal day-to-day operations are expected to continue without interruption.”
However, some sources say the company has seen business dropping significantly as customers worry about its future, and analysts says Nortel can expect to lose significantly more business after the filing.
In addition, suppliers to the company must now decide whether to continue doing business with Nortel and under what conditions. More than $1-billion of outstanding receivables may never get paid if the company fails to emerge from bankruptcy protection.
Nortel's already threadbare shares plunged to just 9 cents apiece before heading back up to 13 cents on the Toronto Stock Exchange following the end of a trading halt Wednesday morning, down 25.5 cents or more than 66 per cent from Tuesday's close.
The New York Stock Exchange suspended Nortel just after the company filed.
Opting for creditor protection marks an incredible fall from grace for a telecom manufacturer that is almost as old as the telephone. Nortel easily qualified as the country's largest company at the peak of the tech boom in 2000, with a $366-billion (Canadian) market capitalization and 95,000 employees.
While still North America's largest telecom equipment maker, Nortel's shares were worth a total of just $192-million on Tuesday, and the company has 26,000 staff after a bruising series of layoffs over the past eight years. Nortel stock that soared to $1,231 at the peak of the tech bubble – reflecting a recent consolidation in shares – closed Tuesday at 38.5 cents on the Toronto Stock Exchange.
In Ottawa, Industry Minister Tony Clement said the Export Development Canada has agreed to provide up to $30-million in short-term financing through an existing bond facility.
Ontario Premier Dalton McGuinty said he remains hopeful that Nortel will ultimately experience a renaissance by possibly finding new opportunities as a smaller business.
