Nortel Networks SA, Re

I have before me an application by the administrators of Nortel Networks SA ("the Company") first, for a direction that the administrators are at liberty to apply to the commercial court at Versailles, France pursuant to Article 29A of the EC Regulation of Insolvency Proceedings 2000 for the opening of secondary insolvency proceedings in respect of the Company.

I also have an application, second, that the administrators be at liberty to enter into a Protocol with the relevant Administrator appointed by the Commercial Court in any such secondary proceedings opened in respect of the Company. Third, a declaration is sought following the opening of the secondary proceedings that the administrators may be at liberty to apply from time to time such of the assets that is currently under their control to the French liquidators, subject to certain conditions particularly designed to ensure that the assets are properly applied commensurate with the duties of the administrators under English law that the payment of such assets should be subject to a proviso that the Commercial Court makes a full and binding order that the current and future administration expenses arising from administration shall be paid from the assets of the Company situated in the French administration together with all debts, claims, liabilities and expenses payable or arising under or in connection with secondary proceedings, or are otherwise adequately secured for. There are also a couple of further incidental orders sought.

The background to the matter is briefly as follows. The company is part of a global group of companies known as the Nortel Group, which particularly forms part of the Nortel Group operating in Europe, the Middle East and Africa. The group is a global supplier of networking solutions in the form of telecommunications between networks, software and no doubt the like.

In January 2009 various Canadian companies in this Group, including the ultimate parent company, sought protection in Canada under the provision of the Canadian Company Creditors Arrangement Act in order to facilitate the reorganisation of the Group for the benefit of its creditors. On the same day certain indirect subsidiaries of the Group in the United States of America, also filed voluntary petitions under Chapter 11 of the United States Bankruptcy Code.

The third significant event that happened on the same day was that administration orders in respect of the Company, which is the subject matter of the application before me, and a further 18 companies incorporated in member states of the European Union were made the subject of administration orders by Blackburne J in this court. The centre of main interests in respect of each of the companies was stated to be located in England and accordingly for EU law purposes each of the administrations is a main insolvency proceeding within the meaning of Article 3 of the EC Regulation.

It is not necessary, I think, for me to spell out further orders made by Blackburne J. In short, the purpose of the steps taken in the three jurisdictions was principally aimed at facilitating the reorganisation within a court or legally based insolvency process of this global network of companies for the benefit of its creditors.

What the administrators now seek in furtherance of that aim is the opening of secondary insolvency proceedings in respect of the Company in France. That is because the Group has substantial interests in EU member states and particularly in France. In order to be able to resolve matters for the benefit of the Company's creditors, it is sadly necessary to take steps towards seeking the redundancy of a number of employees in the Group in France. I think, if I can put it as shortly as this, it is important to say, as I understand it, that if the Company were an isolated company in France and the proceedings were brought in France solely in relation to the Company, the application of French law to a company in such circumstances would mean that making a number of employees redundant would be both extremely costly as well as time consuming. For this reason the administrators have conceived, perfectly reasonably, that it is perfectly lawful and perfectly proper for the administrators to open secondary proceedings in France, while still preserving the main proceeding in this country, with a view to bringing about the same ultimate objective within a more reasonable time scale and, hopefully, within a much smaller budget. In addition, the Company would have the advantage of tax rebates owed by the French tax authorities in the event that the Company entered into secondary insolvency proceedings in France.

For these reasons the administrators seek the permission of the court to take the steps that I have outlined with the ultimate purpose of fulfilling or achieving the purposes or some of the purposes of the administration.

In conformity with EC insolvency regulations, it is anticipated that (if the first order sought is made) the administrators will also enter into a Protocol or agreement with the relevant French liquidators (or insolvency office holders) substantially in the form of a draft Protocol which has been produced to me, which the evidence suggests, and Mr Moss has assured me, is agreed but for one or two small points.

Thirdly, in order to achieve all of this, the administrators apprehend that it would be necessary for them to hand over a substantial amount of the assets to the French administrators for the purposes of carrying out the administration in France.

I am satisfied (with the limits on that latter process that I outlined at the beginning, namely the conditions attached to the use of the assets which I outlined at the commencement of this judgment) that I have both jurisdiction and I ought to exercise my discretion in favour of the orders sought as being in the best interests of the Company and matters which ought to be achievable having regard to the proper purposes of the administration not only under the provisions contained in Schedule B1 and Schedule 1 of the Insolvency Act 1986, in particular paragraph 13 of Schedule 1 and paragraph 66 of Schedule B1, and having regard to the decision in Collins v Aikman (Europe) SA & Others [2007] 1 BCLC 182.

So for those reasons briefly set out, and for all other reasons which Mr Moss has helpfully set out with his junior Mr Allison in the skeleton argument presented before me, I am satisfied that I have jurisdiction to make the orders sought and I think it right to make the orders sought.

I should conclude by simply directing my attention to what I described at the outset as the further incidental orders also sought. One of these was that the witness statement of Mr Harris dated 20th May should not be open to inspection without permission of the court. The basis of that, as set out in the witness statement, was to protect commercial sensitivity. The application is made under Rule 7.31 of the Insolvency Rules 1986.

Since these are important matters touching upon what otherwise ought to be transparent and open proceedings, I ought to say what Rule 7.31(5) of the Insolvency Rules provides. This deals with the right to inspect the court's file of insolvency proceedings and affords a the right of inspection of the court file to certain specified persons, such as the responsible insolvency practitioner, a duly authorised officer of the relevant department of state and creditors of the company. The same right of inspection is, depending upon the nature of proceedings, afforded to others under Rule 7.31(4) which gives them a right to inspect the file with special leave of the court. Rule 7.31(4) provides as follows:

“The right of inspection conferred by this rule is not exercisable in respect of documents, or parts of documents, which the court has directed (either generally or specially) are not to be open to inspection without the court’s permission. An application for a direction of the court under paragraph (5) may be made by the bank liquidator or by any party appearing to the court to have an interest in the bank insolvency.”

Thus, it can be seen that the restriction of inspection of the court file under the terms of that rule is not a complete and absolute bar, but one that necessitates the making of an application to the court for permission to inspect the court file whereupon the court can consider the matter and if appropriate release the document which is otherwise protected from inspection.

What is sought, as I say, is to put an embargo within that rule on the written statement of Mr Steven Harris dated 20th May 2009 and the exhibit thereto in support of his application. It seems to me in view of the contents of that witness statement, in particularly some of the commercial matters contained therein to which my attention has been drawn and the whole of which I have read in any event, it is right to make that order. As I say, it does not put a complete ban, but it will perhaps enable the at least arguably commercial sensitive aspects of the Group's business to be protected and preserved, no doubt with a view to enabling the Company (or the Group) to be saved or to facilitate its reorganisation for the benefit of its creditors, a matter after all which is and was the ultimate purpose of applying for the administration, Chapter 11 procedure, or arrangement provisions back in January.

I will make the orders sought accordingly.