Thursday, July 16, 2009

Impacts on pension claims of bankrupt global corporations.

Nortel Networks was a huge global corporation when it went into bankruptcy protection in January 2009. That meant it had to declare bankruptcy in multiple countries under the rules of each country. Some countries work with others to coordinate the processes and in fact there is some recognition between the US and Canada of the court processes. This has implications for retirees since the assets of the company are spread around the globe.

Details on the assets were discussed at a webinar held recently for Canadian retirees and attended by more than a thousand pensioners in Canada and the US. A major point of the discussion was the erosion of cash in Canada as payments were made from the Canadian assets to cover the costs of the Bankruptcy proceedings and other costs that were global in nature.

The following data by region (obtained from the Webinar charts) shows that the available cash balance in Nortel Canada has fallen dramatically whilst the balances in the other regions have remained steady or grown.

Canada ---------January $260M,by June was $120M, drop of $120M.
US ---------------January $480M,by June was $750M,increase of $280M.
UK/EMEA -----January $620M,by June was $710M,increase of $100M
Asia ------------- January $360M,by June was $400M, increase of $20M
Latin America--January $40M,by June was $90M, increase of $50M

Canada's estate started the bankruptcy protection process on Jan. 14th with only US$260 million or 15% of the global available cash. And since then it has declined to less than 7% of the overall global balance.

As stated in the Webinar, it is up to each creditor group to identify and seek intervention from the court in their region on any transactions that they perceive to treat them unfairly and unreasonably not only within the context of the creditors in their own region, but also within the context of creditors in one region versus another.

The outlook is very bleak for getting full settlement of Nortel's Canadian pension, health and long term disability plan deficits and severance paid in the court room, since Nortel is expecting to liquidate and not be an ongoing concern. Under the Bankruptcy and Insolvency Act (BIA) pension, health and long term disability plan deficits and unpaid severance are treated the same as the unsecured debt holders and suppliers owed money.

As a result the Nortel Canadian Retirees Protection Committee, with the help of Diane A. Urquhart, an independent Financial Analyst has initiated a campaign to change the Canadian pension act. The intention is to make pensioners, ex-employees, and those on disability a priority set of creditors so that the trust funds and other funding mechanisms following liquidation will settle with them first before paying other creditors. You can find out more at: .

The representatives have also requested that the Canadian Federal Government use its authority to set conditions under the Investment Canada Act for a significant proportion of the proceeds from the foreign purchases of Nortel businesses to fund Nortel's Canadian legacy pension, health and long term disability plan deficits and severance.

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