MR JUSTICE SNOWDEN :
1.
Following a hearing on Tuesday 6 June 2017, on Friday 9 June 2017 I made
Orders on applications (“the Applications”) by the administrators (the
“Administrators”) of each of 18 Nortel Group companies (“the Companies”). At
the time that I made these Orders I indicated that I would give my reasons for
doing so in writing, which I now do.
2.
The primary purpose of each of the Orders is to deal with an issue which
has arisen in relation to administration expenses and distributions in the
long-running administrations of the Companies. The Administrators are aware of
the possibility for certain claims to be made which might, if established,
qualify as administration expenses (“Expense Claims”), and thereby rank for payment
in priority to the claims of unsecured creditors. However, a number of these
Expense Claims have not actually been made, and unless matters are brought to a
head, the resultant uncertainty or need to reserve for them would prevent or
delay the making of long-awaited distributions to unsecured creditors.
3.
The Orders give directions from the Court to the Administrators to
inform potential claimants that any Expense Claims which have not yet been made
must be notified to the Administrators on a prescribed “Demand Form” on or
before a specified “Bar Date”. For most of the Companies, the proposed Bar
Date will be 27 October 2017, which will be about four months after the
Administrators send a letter to the persons of whom they are aware who they
think might be intending to make an Expense Claim. The Administrators will
also place suitable advertisements in a national newspaper in each of the
various jurisdictions in which the Companies were incorporated. The letter and
the advertisements will make it clear that notice of any Expense Claim which
has not previously been notified or agreed must be served on the Administrators
by the Bar Date, after which the Administrators will be at liberty to proceed
to pay or reserve for the known Expense Claims and make distributions to
unsecured creditors on the basis that persons who have not complied with the
Bar Date have no Expense Claims. Any late Expense Claims will not be
extinguished, but will only be paid if and to the extent that the
Administrators still have any unreserved funds available after making the
distributions to unsecured creditors.
4.
In addition, in the case of two of the Companies, Nortel Networks
Romania SRL (“Nortel Romania”) and Nortel Networks OY (“Nortel Finland”),
I made Orders authorising the Administrators to distribute their assets to
their unsecured creditors directly rather than by promoting a company voluntary
arrangement (“CVA”) for that purpose.
The applicable
law
5.
As a preliminary point of detail, I should observe that the
administrations of the Companies, which commenced in 2009, have always been
governed by the Insolvency Act 1986 (the “Act”). Until 6 April 2017, the
relevant insolvency rules that were applicable to the administrations were the
Insolvency Rules 1986 (“the 1986 Rules”). However, from 6 April 2017, and
subject to specific transitional provisions, the 1986 Rules have been repealed
and replaced by the Insolvency (England and Wales) Rules 2016 (“the 2016
Rules”). Accordingly, for the future, the rules generally applicable to the
administrations of the Companies will be the 2016 Rules.
6.
However, the Applications for directions in relation to the Expense
Claims were issued under the 1986 Rules on 4 April 2017. As such, they fall
within paragraph 14(1) of Schedule 2 to the 2016 Rules, which provides,
“Where an application to court is filed or a petition is
presented under the Act or under the 1986 Rules before the commencement date
[i.e. 6 April 2017] and the court remains seised of that application or
petition on the commencement date, the 1986 rules continue to apply to that
application or petition.”
Accordingly, the issues arising in
the Applications in relation to the Expense Claims are to be determined in
accordance with the 1986 Rules.
7.
In relation to Nortel Romania and Nortel Finland, the applications for
authority to make distributions in the administrations were also made on 4
April 2017 and referred to the proof of debt and distribution rules in the 1986
Rules. The transitional provisions in paragraph 14 of Schedule 2 to the 2016
Rules accordingly also require me to determine those applications in accordance
with the 1986 Rules.
8.
However, once the Applications have been determined, because the 2016
Rules have come into force and the 1986 Rules have been revoked, the rules
which will be applicable to the future steps which I have authorised to be
taken are those in the 2016 Rules.
9.
Having made these points, I should state that because the relevant parts
of the 1986 Rules and the 2016 Rules are materially the same, I do not think
that the outcome of the Applications would have been any different under the
2016 Rules than under the 1986 Rules. For ease of reference I shall endeavour
to indicate the relevant provisions of both the old and new rules in this
judgment.
Background to
the Administrations
10.
I set out the background to the insolvency of the Nortel Group in two
earlier judgments given on 27 August 2015 ([2015] EWHC 2506 (Ch)) and 3
November 2016 ([2016] EWHC 2769 (Ch)). I shall use the same terminology as in
those judgments, to which reference should be made for the detailed history of
the matter. For present purposes, a much shorter summary will suffice.
11.
The 19 European, Middle East and Asia (“EMEA”) companies of the Nortel
Group were placed into administration in England on 14 January 2009 by Order of
Mr Justice Blackburne. The Administrators of each of the EMEA companies are
insolvency practitioners with Ernst & Young LLP or, in the case of Nortel
Networks (Ireland) Limited, Ernst & Young LLP and Ernst & Young Chartered
Accountants.
12.
The centre of main interests of each of the EMEA companies was held to
be England & Wales for the purposes of the EC Regulation on Insolvency
Proceedings 2000 (No. 1346/2000) (the “Insolvency Regulation”), and each of the
administrations are main insolvency proceedings as defined in Article 3(1) of
the Insolvency Regulation.
13.
After their appointment, the Administrators considered that it would be
in the interests of creditors to avoid secondary proceedings being opened in
the jurisdictions in which the EMEA companies other than Nortel Networks UK
Limited (“NNUK”) were incorporated. The opening of secondary proceedings was
considered at the time by the Administrators to be likely to erode confidence
in the post-filing trading and stability of the companies and to disrupt the
various companies' participations in a coordinated global reorganization or
sale of the global business lines of the Nortel Group, thereby reducing the
value realised for the benefit of its creditors. In order to discourage the
opening of secondary proceedings in the various local jurisdictions in
question, the Administrators of each of the EMEA companies therefore gave
various assurances that if local creditors did not seek to open secondary
proceedings, they would be in no worse position than they would have been in if
the relevant company and the assets in the relevant jurisdiction were subject
to secondary proceedings.
14.
As a result, no secondary proceedings have been opened in respect of any
of the EMEA companies except for Nortel Networks S.A. (“NNSA”). Secondary
proceedings were opened in respect of NNSA in France since it would otherwise
have been unable to carry out a major and urgent part of its required
restructuring programme. The complications to which this has led mean that
NNSA was not a party to the Applications and no Order has been made in relation
to it.
15.
Although there was a successful sale of the global business of the
Nortel Group in 2010 and a sale of the remaining intellectual property rights
thereafter, the EMEA companies faced a variety of disputes with other Nortel
Group entities, in particular those in the US and Canada, in relation to the
allocation and division of the proceeds of that sale (in the total sum of
approximately US$7.3 billion) which had been held in accounts in the US (“the
Lockbox Proceeds”).
16.
By the orders that I made in 2015, I gave the Administrators permission
pursuant to paragraph 65(3) of Schedule B1 to the Act to call for proofs of
debt in relation to NNUK and make distributions to its unsecured creditors, and
permission to promulgate CVAs for the other Companies. These orders were made
in anticipation of resolution by the courts in the US and Canada of the
disputes between the EMEA companies and the US and Canadian entities over the
Lockbox Proceeds. In fact, the various disputes were finally compromised by
the parties in 2016 by way of four interlocking conditional settlement
agreements (together the “Global Settlement”) and in my judgment given on 3
November 2016, I gave the Administrators liberty to perform and procure that
the EMEA companies performed the Global Settlement.
17.
On 8 May 2017 the Global Settlement became unconditional, and as a
result, the EMEA companies’ entitlements to the Lockbox Proceeds under the
terms of the Global Settlement were paid to them on 26 May 2017. The amounts
paid vary between NNUK, which has received in excess of US$1 billion, down to
Nortel Romania and Nortel Finland which have received US$354,552.09 and
US$31,383.31 respectively.
18.
In the case of NNUK, the Administrators are required by the terms of the
Order that I made on 3 November 2016 to pay a first distribution to unsecured
creditors within ten weeks of receipt of its share of the Lockbox Proceeds.
They therefore intend to make a first distribution to NNUK’s unsecured
creditors before the end of July 2017.
19.
As regards most of the Companies other than NNUK, the Administrators
considered that the most appropriate process by which to determine the
liabilities of those Companies and effect a distribution to creditors under and
in accordance with local laws (and thereby to honour the assurances to which I
have referred to above), would be by promulgating CVAs in accordance with the
permission I gave in 2015. Proposals were duly sent out to the creditors of 15
of the other Companies, and CVAs have now been considered and approved by
creditors in respect of all of them.
20.
Although liberty to promote a CVA was granted in relation to Nortel
Finland and Nortel Romania in 2015, for reasons that I will explain below, the
Administrators took the view, with which I concur, that it would be more
appropriate simply to commence a distribution process in the administrations of
those companies. Accordingly, no CVA proposals were made in relation to those
two companies.
21.
On the basis of the Orders that I have made, the Administrators
anticipate making a first payment to the supervisors of the CVAs, so that
distributions may be made to creditors, in Autumn 2017. The only exception is
Nortel Networks (Ireland) Limited, where the distribution is anticipated to be
made in Spring 2018. As regards Nortel Finland and Nortel Romania, the
Administrators anticipate that first distributions in the administrations will
be made to unsecured creditors in December 2017.
Expense Claims
22.
Paragraph 99 of Schedule B1 to the Act provides for an administrator’s
remuneration and expenses to be charged on and payable out of the company’s
property of which the administrator had custody or control immediately before
he ceased to be administrator, and for such amounts to be payable in priority
to any floating charge, and hence, by necessary implication, in priority to any
unsecured debts.
23.
Rule 12.2(1) of the 1986 Rules provides,
“All fees, costs, charges and other expenses incurred in the
course of … administration … proceedings are to be regarded as expenses of the
… administration…”
Rule 3.50 of the 2016 Rules is
in materially the same form.
24.
A list of the expenses of an administration in the order in which they
are payable is set out in Rule 2.67 of the 1986 Rules. Rule 3.51 of the 2016
Rules is in materially the same form.
25.
In the Supreme Court in re Nortel GmbH (Bloom v Pensions Regulator)
[2014] AC 209 (“Bloom v Pensions Regulator”) at paragraph 39, Lord
Neuberger explained that in an administration under the Act and the 1986 Rules,
the order of priority for payment out of the company’s assets (often referred
to as the insolvency “waterfall”) was, in summary:
i)
fixed charge creditors;
ii)
expenses of the insolvency proceedings;
iii)
preferential creditors;
iv)
floating charge creditors;
v)
unsecured provable debts;
vi)
statutory interest;
vii)
non-provable liabilities; and
viii)
shareholders.
26.
Lord Neuberger plainly considered that the expenses of an administration
are a distinct category of claims and liabilities from unsecured provable
debts: see e.g. paragraph 43 of his judgment. That was also common ground
between the parties in the Supreme Court: see paragraph 97 of the judgment.
Expense Claims in the Administrations of the Companies
27.
The Administrators are aware of several significant categories of actual
or potential Expense Claims in the administrations of the Companies.
28.
Certain Expense Claims, such as legal and adviser’s fees, are
uncontroversial, and have been made and accepted both as to their nature and
quantum. The Administrators intend to continue to pay these accepted Expense
Claims (the “Accepted Expense Claims”) in the normal course, subject to any
necessary approvals (for example as to their own remuneration).
29.
However, the Administrators are also aware of a number of potential
Expense Claims which have not been clearly or formally asserted. These
potential Expense Claims are described in the evidence as (i) the Kapsch claim,
(ii) the SNMP claim, (iii) the Chubb claim, (iv) the French employee claims,
and (v) the tax authority claims. In addition, although the Administrators are
confident that they have identified all potential Expense Claims, there is the
theoretical possibility that there may be other unknown expense claims.
The Kapsch
claim
30.
Kapsch CarrierCom (“Kapsch”), a former supplier of the Nortel Group, has
proved an unsecured claim against NNUK for an alleged breach of a carrier
network equipment contract said to have been entered into in 2007. In
extensive correspondence in February this year with the Administrators'
solicitors, Herbert Smith Freehills LLP (“HSF”) concerning that claim, Kapsch’s
solicitors, Nabarro LLP, also included a short sub-paragraph purporting to
reserve its right to assert an Expense Claim in relation to acts undertaken by
the Administrators in the months following the entry of NNUK into
administration. These acts were said to amount to the adoption by the
Administrators of the 2007 contract. There was also a further reservation of
rights in relation to a claim against NNUK and/or the Administrators for
allegedly inducing or procuring a breach of contract and/or causing loss by
unlawful means. No further particulars were given, and HSF replied, rejecting
the claims and any suggestion that they qualified as Expense Claims.
31.
Kapsch has not made any Expense Claim, and on 6 April 2017, HSF wrote to
Nabarro in order to explain the basis for (and enclose a copy of) the
Applications. On 25 April 2017, Nabarro responded, indicating that it was
considering whether or not to appear at the hearing of the Applications to make
submissions. HSF followed up with Nabarro by a further letter dated 31 May
2017, to which no response was received. Nabarro did not appear at the hearing
of the Applications and Kapsch has not otherwise expressed any objection to the
relief sought by the Administrators.
The SNMP
claim
32.
SNMP International, Inc. and SNMP Research, Inc. (together, “SNMP”),
former software licensors to the Nortel Group, have asserted a claim against
the Nortel Group’s US and Canadian entities. They allege that SNMP are owed
fees for pre- and post-insolvency use of SNMP's software in Nortel products and
that some of SNMP's intellectual property was wrongly transferred during the
sales of the Nortel global business and/or that the sales violated SNMP’s
intellectual property rights. SNMP has estimated in proceedings in the US
Bankruptcy Court that the claim should be for no less than US$86 million,
although in resolving its objection to the US Plan, SNMP agreed to accounting
reserves being made by the US Debtors in relation to the administration expense
claims in the amount of US$57.8 million. Conversely, in argument before the US
Bankruptcy Court, SNMP asserted that the claim could be for as much as US$200
million.
33.
On 22 September 2015, the US Bankruptcy Court granted the US Debtors
leave to serve a contribution claim in relation to the SNMP action against the
EMEA companies as third party defendants for any damages that SNMP may recover
against the US Debtors. However, on 2 May 2016 the US Bankruptcy Court
dismissed the EMEA companies as third party defendants. That Order was then
appealed by the US Debtors, but that appeal was agreed to be withdrawn as part
of the Global Settlement.
34.
Notwithstanding the effect of the Global Settlement vis-à-vis any
contribution claim by the US Debtors, on 8 September 2015, counsel for SNMP
indicated in oral submissions before the US Bankruptcy Court that SNMP might
seek to bring claims directly against the EMEA companies. No such claims have
been asserted, but the Administrators consider that there is at least a
possibility that SNMP might seek to do so and further, that they might bring
such claims, at least in part, as Expense Claims.
35.
On 6 April 2017, HSF wrote to SNMP in order to explain the basis for
(and enclose a copy of) the Applications. On 31 May 2017, SNMP’s lawyers
confirmed that they did not intend to appear at the hearing of the Applications
and SNMP has not otherwise expressed any objection to the relief sought.
The Chubb
claim
36.
On 20 March 2014, Chubb Insurance Company of Europe S.E. (“Chubb”)
asserted a claim against NNUK by way of a pre-action letter. The claim related
to NNUK’s alleged omission to deal with a power failure at the premises of an
insured party, Arrow Electronics UK Limited, which occurred on 14 September
2012. HSF responded to the pre-action letter on 10 April 2014. However, save
for ad hoc requests for information from Chubb’s solicitors, there has
been no further formal communication between the Administrators and Chubb.
37.
While the 20 March 2014 pre-action letter did not specify whether
Chubb’s claim would be advanced as an Expense Claim, the Administrators
consider, on reflection after the issuing of the Applications, that there is a
chance that, if pursued, it would be advanced as such. Accordingly, on 16 May
2017, HSF wrote to Chubb in order to explain the basis for (and enclose a copy
of) the Applications. Despite a follow-up letter from HSF to Chubb dated 31
May 2017, there has been no response from Chubb or its lawyers, and Chubb did
not appear at the hearing and has not otherwise expressed any objection to the
relief sought in the Applications.
The French
Employee Claims
38.
167 former employees of NNSA have asserted claims in France against
(among others) NNSA, Nortel Networks Limited (the primary Canadian entity in
the Nortel Group) and NNUK (the “French Employee Claims”). The French Employee
Claims are currently being disputed before the Conseil des Prud’hommes de
Versailles and the Cour d’Appel de Versailles. Of all the Companies
in respect of which the Applications have been issued, it is only NNUK which is
affected by the French Employee Claims.
39.
The French Employee Claims are for damages (i) for alleged unfair
dismissal by NNSA, and (ii) for alleged tortious acts by NNUK. The Administrators
understand that the claims may be up to €43 million in value, or higher. The
French employees have also asked the Cour d’Appel de Versailles to order
that, should it be determined that they have good claims against NNUK, such
claims will rank as “superprivilège”, which connotes a degree of
priority in a French insolvency.
40.
The secondary liquidator in the NNSA secondary proceedings and the NNUK
Administrators have challenged the French Employee Claims, in particular on the
basis that the French Court has no jurisdiction to hear them. The Cour de
Cassation has recently held, in the case of Michael McMullan (whose case
was brought against NNUK on a similar basis to the French Employee Claims),
that the French Court lacked jurisdiction to hear such claims, which fell
within the jurisdiction of the English Court because they arose out of the
administrations. This jurisdictional question is due to be argued again before
the Cour d’Appel de Versailles, which is not bound by (but is expected
to be strongly persuaded by) the decision of the Cour de Cassation on
this point. The next procedural hearing in this matter, before the Cour
d’Appel de Versailles, is scheduled for 28 September 2017.
41.
In addition to pursuing their claims in France, in October and November 2015,
133 of the French employees sent letters to myself and to the Administrators in
response to the request by the Administrators for proofs of debt. Those letters
were in fairly standard form and contained an assertion that the French
Employee Claims, “may give rise to claims having a rank and privilege that
will be enforceable against administration expenses”. The basis for that
assertion has not been explained or particularised and the point has not been
addressed in the French proceedings.
42.
On 10 April 2017, HSF wrote to the lawyer acting on behalf of the French
employees in order to explain the basis for (and enclose a copy of) the
Applications. The Administrators also sent a copy of that letter directly to
each of the French employees and followed that up with a further letter to the
French employees’ lawyer on 31 May 2017. However, no response has been
received from the French employees or their lawyer to any of the
Administrators' letters, and the French employees did not appear at the hearing
of the Applications and have not otherwise expressed any objection to the
relief sought.
Tax
authority claims
43.
The Administrators anticipate receiving claims from some or all of the
local tax authorities against each of the Companies for corporation tax payable
as a result of the receipt of its share of the Lockbox Proceeds. It is
possible that such claims will be asserted as Expense Claims on the basis that
they arise from the global sales of assets that took place during the administrations,
and that even though they might arise under a foreign taxing statute, they fall
within Rule 3.51(2)(j) of the 2016 Rules as,
“The amount of any corporation tax on chargeable gains
accruing on the realisation of any asset of the company (irrespective of the
person by whom the realisation is effected).”
Rule 2.67(1)(j) of the 1986 Rules
was in materially the same form.
44.
The Administrators understand from local tax advisers that, in respect
of each of the Companies except NNUK, there is a risk that they will not have
certainty regarding the quantum of any such tax claims for a number of years
following receipt of the Lockbox Proceeds, or even until expiry of a limitation
period for bringing tax claims. This is because there is either, (i) a formal
procedure by which tax clearance can be obtained, but with great uncertainty as
to whether and if so, when such tax clearance will be granted; or (ii) no
procedure available to secure tax clearance in the form of a binding
determination.
45.
Accordingly, since 4 April 2017, the Administrators have been actively
contacting the tax authorities in order to address this issue. For example,
the Administrators have sent each tax authority a letter setting out (i)
details of the status of the administration of the relevant Company, (ii) an
explanation of the relevant Application and (iii) in most cases, draft tax
computations. The Administrators have also engaged with many of the tax
authorities in this regard by way of further correspondence and, in some cases,
meetings in person. Further, a number of the tax authorities received the CVA
proposal for the relevant Company in their jurisdiction which referred to the
Applications that were planned, and a number of tax authorities voted on those
CVA proposals.
46.
None of the tax authorities appeared at the hearing of the Applications
and none of them have otherwise expressed any objection to the relief sought.
Unknown
Expense Claims
47.
As I have foreshadowed, there is, in theory at least, the possibility
that potential Expense Claims that are currently unknown to the Administrators
might materialise in the future. Given the duration, the advanced stage and
the high profile of the administrations, the Administrators consider, however,
that such possibility is very remote.
The Problem
48.
By September or October 2017, the Administrators and (where applicable)
the CVA supervisors, will be in a position finally to determine the unsecured
liabilities of each of the Companies, and will also have collected in all, or
the vast majority, of the Companies’ assets, ready for distribution.
49.
The problem posed by the potential Expense Claims referred to above is
that with respect to all of the Companies other than NNUK, if the
Administrators are not able to crystallise the position and obtain some degree
of certainty in relation to the potential Expense Claims which would rank for
payment before unsecured creditors, they consider that they would, as a matter
of prudence, have to reserve for such potential Expense Claims in full. This
would prevent them from making any (or any meaningful) distribution to
unsecured creditors or to the supervisors of a CVA, even though the Lockbox
Proceeds have finally been received after the Companies have been in
administration for over eight years.
50.
For example, taking the potential SNMP Claim alone, the quantum of this
claim at its lower end (between about US$60 million and US$80 million) is equal
to all of the assets which are likely to be available for distribution in each
of the Companies other than NNUK, Nortel Ireland and Nortel Germany. If the
SNMP Claim is asserted at its higher level of close to US$200 million, then the
quantum of the claim is likely to be greater than the assets available to each
of the Companies other than NNUK. With respect to NNUK, the uncertainty
surrounding the potential Expense Claims will not prevent a significant first
distribution from being made, but it will have an impact on subsequent
dividends and the completion of the administration.
The Rules on
distributions do not assist
51.
The problem facing the Administrators cannot simply be cured by resort
to the provisions in Chapter 10 of Part 2 of the 1986 Rules, or Part 14 of the
2016 Rules, which enable administrators to call for proofs of debt and make
distributions to persons who have proved their debts. That is because those
provisions relate only to unsecured debts and not to Expense Claims.
52.
So, although Rule 12.3 of the 1986 Rules provides that,
“Subject as follows, in administration … all claims by
creditors are provable as debts against the company … whether they are present
or future, certain or contingent, ascertained or sounding only in damages.”
in Bloom v Pensions Regulator,
Lord Neuberger plainly proceeded on the basis that this was only dealing with
unsecured claims and not with the expenses of the administration: see
paragraphs [43] - [44] of his judgment. Rule 14.2(1) of the 2016 Rules is in
materially similar form.
53.
The point can also be illustrated, for example, by the fact that whereas
a claim for administration expenses will be for a liability “incurred in the
course of … administration” (Rule 12.2 of the 1986 Rules), a proof of debt is
required to state the amount of the creditor’s claim as at the date upon which
the company entered administration (Rule 2.72(3)(b)(ii) of the 1986 Rules).
The same distinction is made in Rules 3.50, 14.1(3) and 14.4(1) of the 2016
Rules.
54.
The distinction drawn between (on the one hand) an expense, and (on the
other hand) an unsecured claim which has been proved is further illustrated by
the terms of Rule 4.180 of the 1986 Rules which states,
“Whenever the liquidator has sufficient funds in hand for the
purpose he shall, subject to the retention of such sums as may be necessary for
the expenses of the winding up, declare and distribute dividends among the
creditors in respect of the debts which they have respectively proved.”
The same provision is now to be
found in Rule 14.27 of the 2016 Rules. Although this Rule does not apply to
administrations, given the similarities between the structure of the
administration and liquidation expense regimes, it is inconceivable that the
same distinction should not be observed in relation to administrations.
55.
Importantly for present purposes, it also follows that the detailed
provisions of Chapter 10 of Part 2 of the 1986 Rules or Part 14 of the 2016
Rules, which enable an administrator to deal with late claims when making
distributions, do not apply to Expense Claims. These provisions include, for
example, requirements for notices to be given to creditors of the intention to
declare a dividend or make a distribution (Rules 2.68 and 2.95 of the 1986
Rules, and Rules 14.29-14.30 of the 2016 Rules); an express statement that the
administrator is not obliged to deal with late proofs (Rule 2.96(2) of the 1986
Rules, and Rule 14.32(2) of the 2016 Rules); and exclusions under which
creditors who do not prove before the last date for proving are unable to
disturb dividends paid or distributions made thereafter (Rule 2.101 of the 1986
Rules, and Rule 14.40 of the 2016 Rules).
56.
In short, neither the Act, nor the 1986 Rules nor the 2016 Rules provide
any express mechanism under which an administrator can require Expense Claims
to be asserted by a specific date, or enable him to refuse to deal with claims
asserted after that date in the context of a distribution to unsecured
creditors. Instead, the unstated assumption appears to be that persons who
have Expense Claims will assert their claims, and that since they will have
been incurred in the course of the administration, the administrator will know
what such claims are, and will pay or reserve for such claims before making any
distribution to unsecured creditors.
The Applications
and Orders
57.
In the absence of any applicable statutory scheme, the Administrators
sought to utilise their general power to apply to the court for directions to
implement their own bespoke regime to achieve a similar result. Paragraph 63
of Schedule B1 to the Act provides:
“The administrator of a company may apply to the court for
directions in connection with his functions.”
58.
The regime originally proposed in the draft orders annexed to the
Applications was refined by the Administrators as a result of the argument at
the hearing. The final version of each Order follows the same basic structure,
under which the Administrators are given directions by the Court to act as
follows.
Paragraph
(1)
59.
Paragraph (1) of the Order provides that on or before 23 June 2017
explanatory letters requiring the filing of a completed Demand Form and giving
notice of the Bar Date should be sent to all potential Expense Claim creditors
of the Companies, except for those who have Accepted Expense Claims. It also provides
that each Order shall also be advertised in one leading newspaper in each of
the Companies’ home jurisdictions.
60.
The Demand Form requires the creditor to give details of his Expense
Claim and to explain why it is an expense claim rather than some other category
of claim (such as a provable debt) under English law. In all of the
jurisdictions apart from Italy, the Bar Date is 27 October 2017, which is just
over four months after notice is given by way of the explanatory letter. The
proposed Bar Date in Italy is 22 December 2017, which is three months after the
bar date for unsecured creditors which applies under the CVA applicable to
Nortel Networks S.P.A. (“Nortel Italy”).
61.
In the case of NNUK, paragraph (1) also provides for an explanatory
letter to be sent to each of the French employees who have made claims against
NNUK in France. That letter contains the same explanation of the requirement
to file a Demand Form by the Bar Date, but provides that the 133 employees who
have already sent letters to the court and/or to the Administrators in 2015 do
not need to send a further Demand Form, and will instead be deemed to have
filed a Demand Form by the Bar Date.
62.
There is no equivalent requirement for notification to the French
employees in relation to any Expense Claims that they might wish to assert
against any of the Companies other than NNUK. That is because the French employees
have not sued any of the other Companies, and it is not at all easy to see how they
could validly assert such a claim against those other Companies.
63.
To address concerns that I raised during the hearing, the letter to the
French employees will also make clear (and the Administrators have given me an
undertaking) that the Administrators will not seek to rely upon anything
done by the French employees in response to my Orders in support of any argument
that the French employees have submitted to the jurisdiction of the English
court. The making of the Orders should therefore not affect the jurisdictional
dispute over the claims that the French employees are pursuing in France.
Paragraph (2)
64.
Paragraph (2) provides a carve-out from the notification and claims
process in respect of those creditors with Accepted Expense Claims.
Paragraph (3)
65.
Paragraph (3) provides that the Administrators shall apply each
Company’s assets in discharge of any Expense Claim that is notified by the Bar
Date and then agreed or otherwise determined.
Paragraph (4)
66.
Paragraph (4) sets out a dispute resolution mechanism in respect of
those asserted Expense Claims which the Administrators reject (whether in whole
or in part). Pursuant to paragraph (4)(a), the Administrators are required to
make a reserve in respect of disputed Expense Claims and, under paragraph
(4)(b), they are also obliged to take appropriate steps to reach agreement with
the claimant as to the existence (or otherwise) and amount of the Expense Claim.
Absent agreement, it is envisaged by paragraph (4)(c) that an application will
be made to the court by the Administrators under paragraph 63 of Schedule B1 to
the Act for directions as to whether they should pay the Expense Claim, and if
so, in what amount.
Paragraphs (5) and (6)
67.
Paragraphs (5) and (6) provide for the treatment by the Administrators
of a Demand Form received in respect of an asserted Expense Claim on or after
the Bar Date (a “Late Expense Claim”) but before any distribution to the
unsecured creditors is made by the Administrators pursuant to paragraph (7) of
the Order.
68.
In those circumstances, the Administrators are to agree, or reserve for
and apply a dispute resolution procedure to that Late Expense Claim in the same
way as a timely Expense Claim. The Late Expense Claim will not, however, be
entitled to disturb the amount of any reserves established or payments already
made in respect of claimants with Accepted Expense Claims or claimants who made
or were deemed to have made their Expense Claims prior to the Bar Date.
Paragraph (7)
69.
Paragraph (7) enables the Administrators to treat the balance of the
Company’s assets that have not been applied or reserved for Expense Claims as
available for distribution to unsecured creditors (or, where applicable, to
make payment to the CVA Supervisors). This is so notwithstanding the existence
of any unresolved Expense Claims, provided that the Administrators have
reserved in full for all Expense Claims of which the Administrators are aware
and any future Expense Claims which they can foresee.
Paragraphs (8) and (9)
70.
Paragraphs (8) and (9) provide for the treatment by the Administrators
of a Demand Form received in respect of an asserted Expense Claim on or after
the Bar Date and after any distribution to the unsecured creditors has
been made by the Administrators pursuant to paragraph (7). In those
circumstances, the Administrators will be able to agree, or reserve for and
apply a dispute resolution procedure to that Late Expense Claim in the same way
as a timely Expense Claim, and, if it is established, pay it pari passu with
any other outstanding Late Expense Claim from any assets that might still be in
their hands. Again, however, such Late Expense Claim will not be entitled to
disturb the amount of any earlier payments made, or reserves established, for
claimants with actual or deemed Accepted Expense Claims, or any earlier
distribution to unsecured creditors.
Jurisdiction
71.
Although the Rules do not contain any express provisions for Expense
Claims to be made and determined, there is no doubt that paragraph 63 of Schedule
B1 enables an administrator to apply for directions from the court if he is in
any doubt as to what qualifies as an expense. Bloom v Pensions Regulator
was just such an application.
72.
On behalf of the Administrators, Mr. Trower QC submitted that paragraph
63 of Schedule B1 was not limited to this function, but was a provision of wide
general application which was capable of being deployed whenever an insolvent
estate is under the control of an administrator, so as to enable the court to
give directions to facilitate the distribution of the fund. He submitted that
this would include directions to enable the office-holder to ascertain the
nature and extent of the expenses which are to be paid out of or are charged on
the fund, together with a direction that the assets may be distributed
(including to lower ranking unsecured creditors) without regard to any
potential higher ranking claims that are unknown and have not been asserted.
73.
In support of this submission, Mr. Trower referred to a number of cases in
which directions have been given by the court to liquidators and administrators
in similar situations, authorising the giving of notice and the making of
distributions without regard to the potential claims of persons who would
either rank pari passu or higher in the statutory waterfall than the
intended recipients of the distribution.
74.
In Re Armstrong Whitworth Securities Co Ltd [1947] Ch. 673, the
original liquidator in a members’ voluntary liquidation had made a distribution
to members without properly investigating the potential claims of employees who
had been injured in accidents at work. Some employees who had been injured in
industrial accidents and whose incapacity had arisen since the date of the
liquidation subsequently made claims for compensation. By the time of the
hearing the original liquidator had died, and the replacement liquidator sought
directions as to what to do. Jenkins J. indicated that the liquidator should
do what he thought that the original liquidator should have done at the start,
namely to write to all employees who were known to have been involved in an
accident at work, informing them of the liquidation and requiring them, if they
thought they had any further claims, to send particulars of such claims to the
liquidator by a specified date not less than 28 days after the posting of the
letter. Jenkins J. then gave directions to the successor liquidator that he
might then apply the funds still in his hands to the payment of the four known
claimants and any other claimants who came forward.
75.
In Re R-R Realisations Ltd [1980] 1 WLR 805, liquidators in a
creditors’ voluntary liquidation had paid all known debts and proposed to make
a substantial distribution to members of the company formerly known as
Rolls-Royce Limited. At the last minute, however, they received a letter
indicating that claims might be made against the company on behalf of the
victims of an air crash in India several years earlier involving an aeroplane
powered by Rolls-Royce engines. The liquidators applied to the court for
directions that they be at liberty to distribute the assets of the company to
its members without providing for any claims or liability arising out of the
accident. The applications were made under section 307 of the Companies Act
1948, which empowered the liquidator to apply to the court to determine any
question arising in the winding-up, and provided that if the court was
satisfied that the determination of the question or the exercise of the power
concerned would be just and convenient, it could make any order it thought
just.
76.
Megarry V-C refused to authorise the distribution to members on the
facts, but did not doubt that the relevant jurisdiction existed. After
considering cases involving the administration of estates and two earlier cases
involving liquidators, Megarry V-C stated, at pages 813H-814C:
“In the result, I would summarise my conclusions as follows.
(1) In deciding whether to make an order under section 307
authorising liquidators of a company in a voluntary liquidation to distribute
the assets of a company among the company's members, notwithstanding a
last-minute claim by persons who contend that they are creditors, the test to
be applied is whether in all the circumstances of the case it is just to make
such an order. There is no rule that the claimants must establish that they
have been guilty of no wilful default and no want of due diligence, although
the presence or absence of any such default or lack of diligence will of course
be a factor, and normally an important factor, in determining what is just.
(2) On making such an order the court may impose such terms
and conditions as in all the circumstances of the case it considers fitting, or
may make such other order as it thinks just. Where the court is asked to refuse
or suspend such an order, any contention that this should be done only on terms
that the claimants should bear the expenses thrown away by their tardiness in
asserting their claims should itself be subject to the test of what is fitting
and just.
(3) Where the order is sought in order to facilitate a
distribution among members, the court will be more reluctant to grant it than
if the distribution is to be made to creditors.”
The last point is a reflection of
an observation made earlier in the judgment at page 811C-D that,
“Just as a man should seek to be just before he affects to be
generous, so I think that an especial care is needed to ensure that all
creditors are paid before distributions are made to the members.”
77.
In Re WW Realisations 1 Ltd [2011] BCC 382, the administrators
of a general retail company sought to be appointed as liquidators of the
company. They also sought directions authorising them to make a payment to a
second tier of secured creditors without making provision for any claims by landlords
and local authorities unless such claims were made by a particular date
following the sending of a letter inviting them to be made. If the claims by
landlords and local authorities were well-founded, the assumption was that they
might have qualified as administration expenses, and therefore ranked ahead of
the secured claims.
78.
David Richards J stated that the jurisdiction to give such directions
was well-founded in relation to claims in liquidations, and he referred to Re
Armstrong Whitworth and Re R-R Realisations Limited in that
regard. He said, at paragraph 23:
“The jurisdiction is derived so far as liquidations are
concerned, from the statutory power of the court to give directions to
liquidators, now contained in s.168(3) of the Insolvency Act 1986. The
equivalent power to give directions to administrators is contained in para.63
of Schedule B1 to the Insolvency Act, and I can see no reason why it should not
be exercised in a similar way. Equally, I see no reason why it should not be
exercised in relation to expense claims, as well as provable debts.”
79.
David Richards J then continued, at paragraph 25:
“Of course, the interests of expense claimants must be
properly protected, but equally there must be a limit to the time in which the
proper working out of administration and liquidation is delayed while those
claimants decide whether to lodge claims. In my judgment, in this case they
have already had good opportunity to lodge their claims, and provided that they
are notified of the effect of my order and provided that the final cut-off date
for claims is not less than 28 days after a further letter is sent, it seems to
me that the proper balance will be struck between the interests of the proper
working out of the administration and liquidation on the one hand and the
protection of these creditors on the other.”
80.
I was also referred to several other cases at first instance where
similar orders had been made: see e.g. Tombs v Moulinex SA [2004] 2 BCLC
397 (a members’ voluntary liquidation) and Re Powertrain Limited [2016] BCC 216 (a creditors’ voluntary liquidation).
81.
I accept Mr. Trower QC’s submission that these authorities, together
with Bloom v Pensions Regulator itself, appear to establish that it is
permissible for the Court to use its power to give directions under paragraph
63 of Schedule B1 (i) to assist administrators in ascertaining which
liabilities of the company properly rank as administration expenses, and (ii)
to authorise administrators to distribute the property of the company to
unsecured creditors who rank lower in order of priority in the statutory
waterfall without regard to any claims for administration expenses that have
not been made by a specified date.
82.
I should, however, deal with two issues that were not expressly
considered in the earlier authorities, but which have come into closer focus in
recent years as a result of cases such as Bloom v Pensions Regulator and
Re Lehman Brothers International (Europe) (No.4) [2017] UKSC 38, [2017] 2 WLR 1497 (“Lehmans Waterfall”). Those issues are whether the giving
of such directions would illegitimately (i) extinguish the rights of creditors
or vary the statutory waterfall, or (ii) amount to judicial legislation.
83.
The first issue arises because it is now clear that, absent an express
statutory power, the court has no jurisdiction either to extinguish statutory
rights to priority or promote lower ranking creditors to a higher order of
priority in the statutory waterfall: see e.g. the observations of Lord
Neuberger in Bloom v Pensions Regulator at paragraphs 115 – 127 to the
effect the court does not have a residual discretion to change the priority
rules set out in the insolvency legislation.
84.
In my judgment, the directions which I have given in the Orders do not
purport to extinguish any legal rights or vary the statutory waterfall. I
recognise, of course, that by authorising a distribution of assets to other
claimants, the directions potentially affect the available fund from which any
expense claims can be satisfied if and when they are finally asserted. That is
because any late expense claimants will not participate in any earlier
distributions of assets and will not be able to disturb distributions that have
already been made or provided for. But latecomers will still be entitled to
assert their expense claims and “catch up” if and to the extent that this is
possible through subsequent distributions of any remaining assets.
85.
In short, what is authorised is the distribution of the assets from
which such expenses could, if they had been asserted in a timely fashion, have
been paid. But prior to the end of the administration, expense claimants have
no express statutory right to payment of their claims out of any particular
assets, or at any particular time. The legal entitlement of an expense
creditor under paragraph 99(3) of Schedule B1 is simply that his debt will be,
“charged on and payable out of property of which [the
administrator] had custody or control immediately before [the time when he
ceases to be the company’s administrator].
86.
This provision has attracted the attention of the courts on a number of
occasions. So, for example, in Paramount Airways Ltd, Powdrill v Watson
[1994] BCC 172 (CA) at 180G, Dillon LJ pointed out that strictly the expenses
are only payable when the administrator vacates office, albeit that he added
that it was well understood that administrators would, in the ordinary course,
pay expenses as and when they arose during the administration. Likewise, in Re
Sports Betting Media Limited [2008] BCC 177, Briggs J held that where there
was a shortfall of assets left at the end of the administration even to pay all
of the expense claims, expense creditors who had received some payments in
respect of their expense claims during the administration were not required to
bring those payments into account for the purposes of calculating a pari
passu distribution of the assets that were left.
87.
In these circumstances, it seems to me that it is possible as a matter
of jurisdiction for the court to give directions under paragraph 63 of Schedule
B1 for a regime that involves a distribution to unsecured creditors under
paragraph 65(3) of Schedule B1, even though that carries a risk that, at the
end of the administration, insufficient assets might have been retained to
enable a late expense claimant to be paid under paragraph 99(3) of Schedule
B1. The question of whether it would be appropriate as a matter of discretion
to give those directions is a different matter, which I shall address below.
88.
On the second issue, I do not think that the directions to be given to
the Administrators amount to impermissible judicial legislation. In Lehmans
Waterfall at paragraph 13, Lord Neuberger commented on the Act and
1986 Rules as follows,
“13. … despite its lengthy and detailed provisions, the
1986 legislation does not constitute a complete insolvency code. Certain
long-established judge-made rules, albeit developed at a time when the
insolvency legislation was far less detailed, indeed by modern standards
sometimes positively exiguous, none the less survive. Recently invoked examples
include the anti-deprivation principle (see Perpetual Trustee Co Ltd v BNY
Corporate Trustee Services Ltd [2012] 1 AC 383, the rule against
double-proof (discussed in In re Kaupthing Singer & Friedlander Ltd
[2012] 1 AC 804, paras 8–12), the rule in Cherry v Boultbee (1839) 4 My
& Cr 442 (also discussed in In re Kaupthing Singer &
Friedlander Ltd [2012] 1 AC 804, paras 13–20), and certain rules of
fairness (alluded to in In re Nortel GmbH [2014] AC 209, para 122). Provided
that a judge-made rule is well-established, consistent with the terms and
underlying principles of current legislative provisions, and reasonably
necessary to achieve justice, it continues to apply. And, as judge-made rules
are ultimately part of the common law, there is no reason in principle why they
cannot be developed, or indeed why new rules cannot be formulated. However,
particularly in the light of the full and detailed nature of the current
insolvency legislation and the need for certainty, any judge should think long
and hard before extending or adapting an existing rule, and, even more, before
formulating a new rule.”
89.
The earlier cases such as Re Armstrong Whitworth and Re R-R
Realisations Limited might be regarded either as examples of the
application of a well-established judge-made rule of the type to which Lord
Neuberger referred, or as the well-established use of an express statutory
provision (paragraph 63 of Schedule B1 or its liquidation equivalent) in a particular
type of case. But whichever way they are viewed, I think that they are
entirely in accordance with Lord Neuberger’s requirements.
90.
The type of directions which have been given in the earlier cases
provide a pragmatic solution to a practical problem, so as to ensure that the
administration of the estate of an insolvent company is progressed and
concluded in a timely fashion in the interests of those creditors who have
established their claims, even if that risks prejudice to those who have delayed.
That is essentially what David Richards J was referring to in Re WW
Realisations 1 Ltd when he said that,
“Of course, the interests of expense claimants must be
properly protected, but equally there must be a limit to the time in which
the proper working out of administration and liquidation is delayed while those
claimants decide whether to lodge claims.”
(my
emphasis)
91.
This reflects other judicial observations to the effect that the
insolvency legislation implicitly requires office-holders to proceed with all
due expedition to collect in and distribute the assets of an insolvent company
to those entitled to them under the Act. In House Property and Investment
Limited [1954] Ch 576 at 612, Roxburgh J referred to the implied obligation
imposed by the Companies Act 1948 on liquidators to complete the liquidation
and effect a final distribution of the assets within a reasonable time, and
that dictum was referred to with evident approval by Patten LJ in Danka
Business Systems plc [2013] Ch 506 at paragraphs 30 - 32.
92.
Moreover, the scheme of giving notice to persons to make a claim by a
certain date, or risk being left out of a distribution, and being forced to
catch up if possible from later distributions, is very similar to the express
scheme that applies as between unsecured creditors with provable debts in
administrations (see e.g. Rules 2.95, 2.96 and 2.101 of the 1986 Rules, and
Rules 14.29, 14.30, 14.32(2) and 14.40 of the 2016 Rules). The directions that
I have given in the Order are thus “consistent with the terms and underlying
principles of the current legislative provisions” (per Lord Neuberger).
Discretion
93.
As Megarry V-C indicated in Re R-R Realisations Ltd, and David
Richards J repeated in Re WW Realisations 1 Ltd, the discretionary
question is whether it is just for the court to give directions of the type
sought, having regard to the need to protect the interests of persons who might
have expense claims, but also recognising the need to facilitate an efficient
conclusion to the insolvency process.
94.
In my judgment, the terms of the Orders which I have made properly
balance the need to protect the interests of persons who might have Expense
Claims which have yet to be asserted, against the need to minimise any further
delay to the conclusion of the administrations and to facilitate the
distribution of the Companies’ assets to their unsecured creditors. I of
course recognise that Expense Claims rank in priority ahead of unsecured
claims. They are, however, all claims by creditors, and so the Applications do
not raise the same level of concern that Megarry V-C voiced in Re R-R
Realisations over the return of monies to members of a company before its
creditors.
95.
In relation to each of the categories of potential Expense Claim to
which I have referred, it must also be recalled that the administrations of the
Companies have been going on for over eight years. During that time they have
attracted considerable publicity, most recently in relation to the imminent
receipt of the Lockbox Proceeds. The Administrators have also been careful to
keep creditors regularly informed of progress. Realistically, it is difficult
to see how any person having a legitimate claim against the Companies could
still be unaware of the need to make that claim, or of the potential benefits
to him in doing so.
96.
Moreover, the potential claimants in most of the categories set out
above have each had a very long time in which to take advice and formulate any
Expense Claims, because the events to which each of the potential Expense
Claims relates took place many years ago. So, for example, the Kapsch claim is
said to have originated in the adoption of a contract shortly after the
commencement of the administration of NNUK in 2009; the SNMP claim relates to
the use of software by the Companies prior to the sale of the global business
in 2010 together with the possible violation of intellectual property rights by
that sale; the Chubb claim relates to the Administrators’ response to a power
failure that occurred in 2012; and the French Employee Claims relate to the
decision to place NNSA into administration in 2009. The only exception is the
tax authority claims, where the precise amount to be received by each of the
Companies from the Lockbox Proceeds was not known until very recently. Even
there, however, the sales of assets giving rise to a potential claim to
corporation tax took place in about 2010 and the Companies have continued to
file tax returns during the administrations.
97.
Further, each of the identified categories of potential Expense
Claimants have had specific notice of the Applications – in some cases both by
a number of direct communications and personal contact - and the opportunity to
appear to oppose the Applications or at very least to ask for more time to
consider the issues. Most of them (including the French Employees) have
instructed lawyers in relation to their potential claims, and the tax
authorities can equally be expected to have access to appropriate in-house
legal advice. None of them has seen fit to oppose the Orders that I have made
or seek more time to consider their position. The same cannot, by definition,
be said of unknown potential claimants, but as I have indicated, the prospects
of such persons existing must be very slim, and apart from the regular up-dates
on the Companies’ websites, nothing more can be done other than the placing of
advertisements in national newspapers.
98.
Finally, and in any event, the Bar Date will be some four months after
the potential claimants receive a letter or see a newspaper advertisement
advising them of the need to make any Expense Claims or risk being unable to be
paid after a distribution is made to unsecured creditors.
99.
Taken together, it seems to me that these factors mean that persons with
potential Expense Claims will have had more than enough time by the Bar Date
within which to assert such a claim if they genuinely think they have one. I
think that the general provisions of the Orders which I have outlined provide
more than adequate safeguards for their interests, and hence that the time has
now come to put such persons on notice that they should not be permitted to
delay making such claims any longer given the prejudice that doing so will
cause to the interests of the unsecured creditors.
100.
There are, in addition, a number of specific protections which have been
added to ensure that the interests of certain of the identified persons with
potential claims are protected.
101.
I have already referred to the details of the letter to be sent to the
French employees, to the fact that those who have sent letters to the court or
the Administrators in response to the invitation for proofs of debt will be
deemed to have made an Expense Claim, and to the undertaking given by the
Administrators not to rely upon any response to the Orders in support of any
argument concerning submission to the jurisdiction of the English court.
102.
In relation to the tax authorities, who have only recently had notice
that the Companies were due to receive their share of the Lockbox Proceeds, and
some of whom have not yet received a tax computation from the Administrators,
it may be that some of the authorities will be unable to process the materials
in time to complete a Demand Form and submit it to the Administrators by 27
October 2017. The Administrators are not aware that any such problem actually
exists, apart from in relation to Nortel Italy, where the Bar Date has been set
for December 2017. However, to address this potential issue, the
Administrators have confirmed (i) their intention to provide any outstanding
tax computations at least three months before the Bar Date, and (ii) that if
any of the tax authorities contact them to indicate that they have difficulty
complying with the Bar Date, the Administrators will apply to the court for
further directions. Finally, the Administrators indicated that even if no
claim is made by the Bar Date, they intend, in any event, to reserve sufficient
funds to cover the tax liability which they have been advised that the relevant
Company might owe to the tax authority and which might rank as an
administration expense.
The Orders in
relation to Nortel Romania and Nortel Finland
103.
In relation to Nortel Romania and Nortel Finland, the Administrators
sought orders under paragraph 65(3) of Schedule B1 to the Act and rule 2.97(2)
of the 1986 Rules, granting them permission to make distributions and declare
dividends to unsecured creditors. As I have indicated, I made such an order in
relation to NNUK in 2015.
104.
Paragraph 65 of Schedule B1 to the Act provides as follows:
“(1) The administrator of a company may make a
distribution to a creditor of a company.
(2) Section 175 shall apply in relation to a
distribution under this paragraph as it applies in relation to a winding up.
(3) A payment may not be made by way of distribution
under this paragraph to a creditor of the company, who is neither secured nor
preferential unless the court gives permission.”
105.
There have been relatively few cases which have considered the exercise
by the court of its discretion to grant permission under paragraph 65(3) of
Schedule B1 to the Act. I reviewed the law in my 2015 judgment at paragraphs
19 et seq.
106.
In Re GHE Realisations Ltd [2006] 1 WLR 287, at paragraphs 5 to
11, Rimer J considered that the creditors’ interests as a whole should govern
the exercise of the discretion and that the court should consider whether
payment of a dividend is consistent with the functions and duties of the
administrator and any proposals made by him or which he intends to make. That
statement was approved in Re MG Rover Belux SA/NV [2007] BCC 446 by HH
Judge Norris QC and by David Richards J in Re MF Global Overseas Ltd
(unreported, 5 June 2013).
107.
When I heard the application in July 2015, the Administrators thought
that the promulgation of CVAs would be appropriate for Nortel Finland and
Nortel Romania, in particular because (a) it was not anticipated that creditors
would be paid in full, and (b) a CVA would in each case be the best way of
giving effect to the assurances that had been given in relation to local law
priorities to which I have referred. Accordingly, orders were sought and
obtained giving the Administrators permission, but not obliging them, to
promulgate CVAs in respect of these two companies.
108.
Since then, and particularly in light of the relatively modest amounts
which Nortel Finland and Nortel Romania received from the Lockbox Proceeds, the
Administrators have reached the conclusion that it is not cost-effective to
promulgate a CVA in respect of these companies because of the comparatively
small size of their estates. Moreover, and as I was told in November last
year, it now appears likely that these Companies’ unsecured creditors will in
fact be paid in full. As a result, the issue of the assurances as to local
priorities that could be given effect in a CVA is unlikely to be of any
practical importance.
109.
In these circumstances, I am satisfied that it would be in creditors’
interests as a whole, and consistent with the general functions and duties of
the Administrators of Nortel Romania and Nortel Finland, to utilise the most
cost-effective means of paying their creditors, and that this is not by means
of a CVA, but is by way of a proof of debt process followed by a distribution
under the 2016 Rules.
Conclusion
110.
For the reasons set out above, I was content to make the Orders on 9
June 2017.
