Saturday, August 29, 2009

Nortel bankruptcy and Loss of loyalty

During all those years we retirees worked for Nortel, the vast majority of us were extremely loyal and devoted to the company. In return the company paid us and looked after us with health care, life insurance, long term care, and financial planning options such as 401Ks, and RRSP. We also had a vast social network of friends and colleagues who in general helped one another to succeed.

Once we retired we found ourselves outside in Netherland, and our contact with the company became more and more distant and arm’s length. Retiree associations were limited to areas of large population and even then only some of us joined in those activities.

Now that Nortel is in Chapter 11 bankruptcy, the relationship has turned sour and we are almost seen as the enemy. The years of contribution and concern seem all for naught as the company flounders and treats us with disdain. So much brainpower that could have been put to good use to help the company during its rocky journey in the last decade has been ignored and dismissed. Such shortsightedness can only come from a poor understanding of the real strength of a company, and in the case of Nortel it appears to have started with the introduction of new external management who didn’t understand the market, the technology, or the culture within.

Now as Nortel lies on its death bed, the stupidity continues. All those thousands of retirees and ex-employees who at one time would stand up and be counted for Nortel, are faced with placing claims in the court systems of multiple countries, to try to regain some of the monies owed them for the years they spent building Nortel into the giant it became. How the mighty have fallen.

One would think that a reasoned approach would be that Nortel could tell each retiree or ex-employee what amount of money they each were owed. After all the data resides in the Nortel systems and they will have to generate the claims anyway to present them to the courts.

But that’s not the way it is. It’s never easy, and in this bankruptcy process, run by the courts, everyone has to try to work out their own claims. At least in Canada and I think the UK, the courts were intelligent enough to have an external agency accumulate the claims of the ex-employees so that they could be compared to the view from Nortel.

Not so in the USA however. Our bankruptcy judge would not recognize us on the creditor’s committee and as a result we will have thousands of people trying to figure out what Nortel owes them. There are bound to be huge discrepancies and technical glitches that will result in re-runs and reviews and legal debates that may go on for years. It’s certainly good business for the lawyers and the court since they will be getting paid during all this, and probably from Nortel’s dwindling assets.

So the upshot of this in all countries will be additional costs to determine the claims before the full extent of the liabilities can be determined. So that means charges to the Nortel assets as legal costs build and build, and that then means less money for the creditors including the retirees, when the loot is finally split up.

I must say that I am glad my claim in Canada is being handled by the actuaries and Koskie Minsky who is representing about 19,000 people. It makes my life a lot easier. But it could have been a much cheaper process if Nortel had simply sent the claim data by individual to us and to Koskie Minsky.

In the US we are lucky to have Segal working out claims for a few people who have contributed payments to the US NRPC. But there are thousands of others who are not in this group who will undoubtedly have a lot of difficulty calculating their claims and getting agreement with Nortel.

In addition we have not been admitted to the creditor’s committee. The only people represented on that committee are those with qualified defined pensions and they are being represented by the PBGC which has little or no knowledge of the Nortel ex-employee population other than what has been sent to them by Nortel’s agent Mercer.

At the web seminar held by Koskie Minsky and the Canadian NRPC this week, the lawyer from K.M. described how in Canada they were dealing with the court and with the monitor, Ernst & Young. There has been progress in that process, and there is definitely a feeling that ex-employee interests are being well looked after by a caring law firm that understands how to protect our rights.

The monitor, E&Y, is now managing Nortel and basically running the business. And although we have no direct contact with them, K.M., on behalf of the Canadian contingent, can review and if necessary question the decisions being made.

In contrast in the US there is no such monitor and as the representative from K.M. stated, the creditor’s committee has some of that responsibility here. In the US we have no contact with that committee other than through the court appointed attorneys Akin Gump representing all unsecured creditors, and the PBGC. So we have basically been cut adrift and are at the mercy of the court.

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