Ontario's top court denies bid by U.S. bondholders in Nortel bankruptcy case

TORONTO – Ontario’s top court has rejected an application by a group of U.S. bondholders to appeal a decision last year on how Nortel Networks Corp.’s remaining US$7.3 billion in assets should be divided.

A panel of three judges from the Ontario Court of Appeal said Tuesday the reasons put forth by the group contained “no merit” and will be dismissed.

The panel said it did not agree with the U.S. bondholders’ argument the trial judge “exercised his discretion in an unprincipled way and strayed into improper ‘commercial judicial moralism'” when he decided to divide the assets on a pro rata basis among Nortel’s former subsidiaries around the world.

“The trial judge considered the evidence before him in considerable detail and worked with the facts presented to him, the 42-page ruling said.

“Based on those facts, he concluded that a pro rata order constituted the answer to the allocation issue. The fact that the answer is also fair should not detract from the force of his conclusion”

The Ontario Superior Court and a U.S. bankruptcy court in Delaware issued the ruling last May, stating that proportional distribution would wind up giving all the creditors about 71 per cent of the return on their claims.

The joint decision by the Canadian and U.S. courts came after months of legal battle over Nortel’s remaining assets, which were the result of the sale of chunks of its business.

The Ottawa-based technology company filed for bankruptcy in 2009 following an accounting scandal. At its height from 1999 to 2000, Nortel was worth nearly $300 billion, employed more than 90,000 people globally.

In its ruling, the appeal court expressed frustration over the delays and legal battles that have been staged in the case.

It noted that it has been seven years since the bankruptcy filings, and more than 6,800 former Nortel employees and pensioners have died with legal costs climbing well above US$1 billion.

“A further appeal proceeding in Canada would achieve nothing but more delay, greater expense, and an erosion of creditor recoveries,” said the panel.

The appeal court also noted that the parties involved have repeatedly been asked to try to “resolve their differences” through mediation but have not done so.

Last month, a U.S. court heard an appeal from U.S. bondholders regarding the May 2015 ruling. A decision has not yet been released in the case.

— Follow @LindaNguyenTO on Twitter.