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May 5, 2016

Top court rejects Nortel bondholders’ appeal on interest payments

By Janet McFarland
The Globe and Mail

The Supreme Court of Canada has closed the door on an application by Nortel Networks Corp.’s U.S. bondholders to try to make a claim for extra interest payments on their $4-billion (U.S.) of outstanding notes.

The Supreme Court ruled Thursday that it will not hear an appeal of an Ontario Court of Appeal decision in 2015 that rejected U.S. bondholders’ claims that they deserve to be paid interest on their bonds from the date Nortel filed for bankruptcy protection until now.

Bondholders argued in court filings last year that they deserved more than $1.6-billion in interest that has accrued since Nortel’s bankruptcy filing in 2009 – an amount that would now top $2-billion.

However, the Ontario Superior Court found that interest stopped accruing at the time of the bankruptcy protection filing, and the Supreme Court of Canada’s decision not to hear an appeal means the ruling will stand.

The decision is the second defeat this week for Nortel’s U.S. bondholders in Canada’s courts. On Tuesday, the Ontario Court of Appeal refused to hear an appeal application in the bondholders’ protest of the proposed method for distributing Nortel’s $7.3-billion in remaining assets.

That ruling meant Nortel’s assets will be distributed equally among the company’s Canadian, U.S. and European divisions on a pro rata basis, rather than having the lion’s share go to fill U.S. claims, as bondholders argued.

Toronto lawyer Mark Zigler, who is representing former employees of Nortel, said the two decisions this week are good news for other creditors of Nortel, including pensioners.

“It basically closes doors for additional litigation about claims in Canada and brings us closer to an allocation and putting money in people’s pockets,” he said.

Mr. Zigler said he hopes both rulings will spur all of the parties involved in Nortel to reach a settlement to end the fighting over the company’s remaining funds.

“I think all these decisions are designed to bring the parties closer to an agreement.”

U.S. bondholders reached a settlement deal last year with the administrator of Nortel’s U.S. unit, agreeing to cap their claim for postbankruptcy interest to $1-billion in the United States. But the settlement did not cover their potential claim in Canada for extra interest payments.

If the Supreme Court had ruled instead to hear the case and allow interest to accrue beyond the date of the bankruptcy filing, bondholders could have made a claim in Canada for their unpaid funds, which would have been considered separately from a U.S. claim.

While the Canadian courts are eliminating routes to further appeal in the Nortel case, U.S. bondholders are still awaiting a decision in a U.S. court on a parallel appeal of the plan for distributing the remaining assets. The U.S. bondholders filed appeals in both countries because courts in Ontario and Delaware are overseeing Nortel’s bankruptcy case.

A U.S. judge heard appeal arguments in April but has not yet issued a decision in the case. In a surprising twist, Justice Leonard Stark of the U.S. District Court in Delaware issued an order Wednesday suggesting that instead of handing down a ruling in the case, he is considering referring the case directly up to the U.S. Court of Appeals.

Justice Stark said that in light of the Ontario Court of Appeal decision released Tuesday, which dismissed the appeal application in Canada, he wants all parties to submit “short letter briefs” commenting on whether he should now send the case straight to the U.S. appeals court for a ruling on the same issue.

He did not explain why he is considering the move, but such a decision could help speed the case through the U.S. appeals process.

To read the article online, please go here.

Thornton Grout Finnigan LLP, Suite 3200, 100 Wellington Street West, P.O. Box 329, Toronto-Dominion Centre, Toronto, ON M5K 1K7 Canada T 416.304.1616 E info@tgf.ca

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