The U.S. division of Nortel Networks Corp. says it is a "myth" that Nortel was a Canadian company run from Canada, arguing in court Tuesday that the telecom firm was a multinational made up of separate companies with their own creditors and their own assets.
Lawyer James Bromley, representing Nortel's U.S. division, told judges overseeing the firm's liquidation that the autonomous U.S. division was required to co-guarantee $4-billion of the parent company's bonds because it was financially stronger, and it is unfair that the parent is seeking to take the U.S. unit's remaining assets.
"We are sitting here today dealing with bond claims in the U.S. solely because our Canadian parent told us to guarantee those debts," Mr. Bromley said.
He made his comments during closing arguments in the long-running case to decide how to divide Nortel's remaining $7.3-billion in cash among different divisions based in Canada, the United States and Europe.The case is being heard in courtrooms in both Canada and the U.S. linked by video conferencing, and the decision of the two judges will be crucial in determining how much creditors and pensioners in each jurisdiction will recover on their claims.
The U.S. company and its creditors argue the assets should be divided based on the value each unit contributed to the sales proceeds, proposing 72.6 per cent of the $7.3-billion remaining should go to the U.S. unit, 10.6 per cent should go to Canada and 16.8 per cent to European creditors.
On Monday, lawyers for Nortel's Canadian operation and its creditors argued the Canadian unit owned the U.S. and European subsidiaries, so has the right to the proceeds from the sale of their assets. Lawyers for 20,000 Canadian employees and pensioners complained the U.S. proposal for dividing assets is "inequitable and extreme" and would see the Canadian employee group recover on a small fraction of their $3-billion claim.
Mr. Bromley, however, said the division of assets has to be based on legal rights, and said the Canadian parent company only owned the U.S. operations as an equity owner of the separate U.S. company. The parent should therefore have the lowest claim on proceeds in the U.S. estate because equity owners rank last – behind all debt holders – in the distribution of assets in bankruptcy, he said.
"That is a cornerstone of insolvency regimes in each of the three main jurisdictions," Mr. Bromley said.
He said it is a "myth" that Nortel was a Canadian company, arguing it was a multinational enterprise with separate units. He also said it is a myth that the Canadian division created all of the company's technology, and a myth that the company was run from Canada.
He said the "incredibly large and vibrant" U.S. company was the largest and most profitable division, which directed its own research and development, and ran its lines of business. The division also has "enormous liabilities," including obligations to its own creditors, its employees and to bondholders.
Mr. Bromley said the U.S. division had the most employees and pension plan members of any unit, and noted that many of those employees joined new companies that acquired Nortel's units when they were sold.
Lawyers for the U.S. operation argue the Canadian parent chose to organize Nortel's businesses as separate legal entities with their own creditors, but now wants to strip out their assets to pay creditors of the Canadian division.
Mr. Bromley added the U.S. division gave the parent company $453-million in cash after it filed for bankruptcy protection to allow it to keep operating while it sold off its key assets in an orderly fashion. He said it is unjust to require the U.S. division to pay out so much of its cash to the parent and then also take the proceeds from the sale of its technology.