US Magistrate rules in favor of Nortel in suit brought by UK Pension Regulators

As published in Total Telecom Review.

http://www.totaltele.com/view.aspx?ID=457749


US magistrate shields Nortel from UK pension regulators
By Peg Brickley, Dow Jones Daily Bankruptcy Review
Monday 09 August 2010

Authorities fear Canadian vendor could leave $3.4 billion shortfall.

A U.S. federal magistrate has shielded Nortel Networks Corp. from action by U.K. pension regulators who fear the troubled company will walk away from obligations to 40,000 retirees, leaving a $3.4 billion funding shortfall.

Recommendations issued Thursday by U.S. Magistrate Judge Mary Pat Thynge relieve the company of worry that the U.K.'s Pension Regulator will intrude as Nortel negotiates a bankruptcy exit plan, at least until a federal district judge reviews and acts on Thynge's recommendations.

She left in place a February ruling that protects Nortel from having to answer to U.K. pension authorities. The Canadian telecommunications equipment maker filed a Chapter 11 plan in July, but isn't expected to say until September how it will split up the billions it raised while in bankruptcy. Thynge dismissed arguments that the "moral hazard" interests of U.K. pension regulations exempt them from the automatic stay that blocks legal action against companies operating under Chapter 11 protection. Lawyers for the British regulators said they are enforcing laws meant to deter irresponsible corporate behavior.

She upheld a ruling from Judge Kevin Gross of the U.S. Bankruptcy Court in Wilmington, Del. In February, he barred continued action in Britain, where regulators were pondering whether to order Nortel to say how it planned to deal with its financial obligations under pension plans linked to its U.K. operations. Such orders are issued when U.K. regulators determine a plan is in jeopardy of being left short of funding to cover pension payments but an entity related to the employer responsible for the plan might be in a position to help out.

In this case, U.K. regulators are trying to tap Nortel's Canadian and U.S. operations, which had amassed more than $5 billion in cash as of the end of May, according to court documents and Securities and Exchange Commission filings.

Nortel sold many of its businesses after seeking court protection from creditors. The company still hasn't said whether it will sell or reorganize around its portfolio of patents, which is worth about $1 billion, according to some estimates.

Issuance of a financial support directive would allow the U.K. pension regulator to get in line for a share of the cash that will be distributed under the company's plan. Nortel jettisoned its U.S. pension obligations last year, leaving it up to the U.S. Pension Benefit Guaranty Corp. to take over the payments.