Nortel Networks implements ground-breaking global settlement

On May 26, 2017, Nortel Networks Corporation and Nortel Networks Limited announced receipt of its allocation entitlement of approximately US$4.165 billion pursuant to the Settlement and Plans Support Agreement (the "Global Settlement and Support Agreement") entered into October 12, 2016, and the implementation of the CCAA Plan of Compromise and Arrangement approved by the Ontario Superior Court of Justice on January 24, 2017. The Global Settlement and Support Agreement also provided for, among other things, the release to Nortel Canada of approximately US$237 million of other sale proceeds plus a further amount of sale proceeds relating to the transfer of I.P. addresses by Nortel Canada, as well as payment to Nortel Canada of US$35 million on account of reimbursement of various costs incurred in connection with the asset sales.

Initial distributions to unsecured creditors of Nortel Canada commenced in July 2017.

Further information on the CCAA proceedings can be found at www.ey.com/ca/nortel.

Nortel Networks Corporation (Nortel Canada) is the Canadian parent company of what was one of the largest telecommunications businesses in the world. In early 2009, formal insolvency proceedings were commenced in Canada, the United States and England, among other places. Nortel's worldwide business was liquidated through a number of Court approved sales of its business units and a US$4.5 billion sale of its residual patents, resulting in US$7.3 billion of global sale proceeds to be allocated amongst the Nortel debtor companies in Canada, the United States and Europe. Ernst & Young Inc. was appointed as CCAA Monitor in respect of Nortel Canada and, after the resignation of Nortel Canada's board of directors, its powers and responsibilities were expanded to protect the interests of Nortel Canada's stakeholders.

Following the failure of several mediations, an unprecedented "joint" trial to determine the allocation of these sale proceeds among the Nortel debtors (the Allocation Dispute) was held before the Ontario Court and Delaware Bankruptcy Court. This trial took place in the spring of 2014. The lead up discovery and litigation process involved approximately 150 fact and expert depositions in various cities worldwide, the production and review of millions of documents and the exchange of dozens of expert reports. In May 2015, the Ontario and Delaware Courts released separate decisions in the Allocation Dispute, each of which provided for a modified pro-rata allocation of the proceeds amongst the Nortel debtors based on the amount of creditor claims against each debtor. Those decisions were appealed by the US interests. In Canada, leave to appeal was denied by the Ontario Court of Appeal in an unprecedented 42 page decision, with Lexpert magazine citing this as one of its Top 10 Business Decisions of 2016. Leave to appeal to the Supreme Court of Canada was sought by the US interests.

In an effort to avoid further protracted litigation and following months of further mediation and negotiations, in October 2016 the Nortel debtors and certain of their significant creditors from Canada, the United States and Europe reached a global settlement of the Allocation Dispute and various other matters. The global settlement entitled Nortel Canada to 57.1% of the global sale proceeds of US$7.3 billion, Nortel's US debtors to 24.35% and Nortel's European debtors to 18.55%. Stemming from and in order to implement the global settlement, coordinated plans of arrangement were also negotiated amongst the Nortel Canada and US debtors and their key stakeholders and these plans were filed in Canada and the US Creditors and the Courts approved the plans in January 2017, with in excess of 99% of voting creditors (both by number and value) voting to approve the Canadian plan. Two individual unrepresented opposing creditors sought leave to appeal the Canadian sanction order, which leave application was dismissed by the Ontario Court of Appeal in March 2017. The Monitor then led the negotiation of a waiver and reserve agreement which permitted the global settlement and plans to become effective in early May 2017 notwithstanding the intention of an individual opposing creditor to seek leave to appeal to the Supreme Court of Canada (the Supreme Court of Canada ultimately denied this leave application in July 2017).

The case involved the coordinated, multi-jurisdictional (Canada, US, Europe and various other jurisdictions) sale of Nortel's global business units and patent portfolio for more than US$7.3 billion, followed by an unprecedented simultaneous joint, video-linked trial before the Ontario and Delaware Courts to address the allocation of those proceeds. A far-reaching global settlement was ultimately negotiated amongst numerous international parties leading to creditor and Court plan approvals and distributions of billions of dollars to Nortel creditors worldwide.