Mediation talks resumed in New York Thursday on the seventh anniversary of Nortel’s bankruptcy. The ongoing battle over the former telecom giant’s ever-shrinking pool of assets continues to enrich lawyers and accountants in a case many legal scholars say should have ended long ago. Legal fees have already likely surpassed $2 billion, out of a total asset pool of only $7.3 billion.
But while the courts have had to sift through complicated legal questions, it now appears that the case drags along because of a holdout team of lawyers and accountants.
Sources familiar with the case say the London-based team of accountants from Ernst & Young and lawyers from Herbert Smith Freehills, which represent creditors to the European, Middle East, and African (EMEA) operating unit of Nortel, have been allocated a far greater payout than they requested, and yet the group has failed to agree to a settlement.
While EMEA is the smallest of the operating units (the others are Canada and the United States) and requested an allocation of only 18 percent of the assets, EMEA was awarded 24 percent from a pro-rata distribution determined jointly by US and Canadian courts last year.
This same EMEA group, despite having the smallest stake of the three units, is already responsible for 45 percent of the legal costs.
InsideSources has repeatedly requested comment from Alan Bloom of Ernst & Young UK and Gavin Davies of Herbert Smith Freehills. Neither has responded.
Following last year’s court ruling, lawyers and accountants for UK trustees of Nortel’s pension fund praised the ruling, even hoping “that this decision will lead to a positive conclusion rather than to more costly and time-consuming litigation.” The UK pension fund is the primary beneficiary of the ruling favoring the EMEA group, and yet the group refuses to settle.
Representatives of the law firm Hogan Lovells and pension consultants at PriceWaterhouseCoopers, both of which represent the UK estate, did not respond to requests for comment.
While Nortel’s remaining assets make it only a fraction of the size of the largest bankruptcies in US history, those cases were settled far quicker. Lehman Brothers, the largest bankruptcy ever with $691 billion in assets at the time of filing, had approximately 60 times more assets than Nortel. The proceedings were completed in 3.5 years. CIT Group, which had $80 billion in assets, managed to find its way out of the courts in one month.
Seven years on, Nortel’s creditors await resolution. Canadian pensioners remain unsure of their future. One source familiar with the case says, “This is the last, best chance to get money out to people.”
Absent a settlement, says the source, it will be years before any money is distributed. That will mean hundreds of millions in additional legal fees.