Nortel Networks UK Ltd & Ors, Re

Factual and Procedural Background

This opinion concerns an application by the joint administrators ("the Administrators") of Company A and 18 other companies within the same group ("the Group Companies") for an order extending their terms of office by 12 months, to 13 January 2019.

The Group Companies operated a global networking solutions and telecommunications business based on intellectual property. On 14 January 2009, the Canadian parent company and certain Canadian affiliates sought protection under Canadian insolvency legislation, while certain US-registered companies filed for bankruptcy protection under US law. On the same day, Company A and the Group Companies were placed into administration by order of Judge Blackburne, who was satisfied that the companies' centres of main interests were in the UK.

The Administrators' terms of office have been extended four times previously, most recently in December 2015, when the court extended the administrations by 24 months to 13 January 2018.

Following their appointment, the Administrators sought to avoid secondary insolvency proceedings in the companies' home EU Member States to prevent disruption to a coordinated global reorganisation or sale of the Group's businesses. Assurances were given to creditors to discourage such proceedings, which were largely successful except in one case where secondary proceedings were opened in France.

The Group pursued a coordinated global reorganisation, which ultimately resulted in the sale of business lines and intellectual property for approximately US$7.3 billion. These proceeds were held in escrow accounts in New York ("the Lockbox"). After failed mediations, simultaneous hearings in the US and Canada resolved the allocation of the sale proceeds ("the Allocation Dispute") on a modified pro rata basis according to allowed claims.

Following these decisions, the court authorised the Administrators to make distributions to unsecured creditors and to promulgate Company Voluntary Arrangements ("CVAs") for the Group Companies as appropriate, including a claims determination mechanism for the company subject to French secondary proceedings.

Although the US and Canadian decisions were subject to appeals, a global settlement was reached in October 2016, and the court authorised the Administrators to enter into settlement agreements and extended the date for distributions related to Company A.

The settlement became effective in May 2017. The Administrators applied for directions to set bar dates for administration expense claims to facilitate distributions to unsecured creditors, which the court granted in June 2017. Since then, bar dates have passed and expense claims have been resolved or are being negotiated.

Initial distributions have been made to creditors of Company A and other Group Companies under CVAs or standard administration processes. Further distributions and recoveries are anticipated during 2018, with the expectation that the administration and CVA processes will be completed by the end of that year, followed by dissolution of the companies in their places of incorporation.

The CVA for the company subject to French secondary proceedings has not yet been proposed, but Administrators anticipate doing so in early 2018.

Legal Issues Presented

1. Whether the court should exercise its discretion to extend the Administrators' terms of office for a further specified period under paragraph 76(2)(a) of Schedule B1 to the Insolvency Act 1986.
2. Whether the purpose of the administration remains reasonably likely to be achieved by such an extension.
3. Whether any prejudice would be caused to creditors by the extension.
4. Whether the views of the creditors support the extension.
5. Consideration of the impact of the United Kingdom's anticipated withdrawal from the European Union on the insolvency proceedings and the appropriate length of any extension.

Arguments of the Parties

Administrators' Arguments

• Moving any of the Group Companies into liquidation at this stage would be disruptive and damaging to creditors' interests.
• An extension is necessary to enable the proof and distribution process to be completed and to allow CVAs to be fulfilled as approved by creditors.
• There are no obvious benefits to creditors from liquidation now; it would cause disruption and increased costs.
• The statutory purposes of the administrations remain achievable by making distributions to creditors.
• The one-year extension sought is prudent given the uncertainty caused by the UK's pending withdrawal from the EU and its impact on insolvency regulation and recognition.
• Creditors have been notified of the application and none have objected.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
[2015] EWHC 3618 (Ch)	Previous extension of administrators' terms of office	Referenced as the most recent prior extension of the administrations to 13 January 2018
[2015] EWHC 2506 (Ch)	Authorisation for Administrators to make distributions and promulgate CVAs	Referenced to show court approval for distributions and CVA mechanisms following Allocation Dispute decisions
[2016] EWHC 2769 (Ch)	Permission to enter into global settlement and extension of distribution dates	Referenced in relation to the Global Settlement and extension of distribution timing
[2017] EWHC 1429 (Ch)	Directions for setting bar dates for administration expense claims	Referenced as authority for allowing Administrators to require timely claims to facilitate distributions

Court's Reasoning and Analysis

The court considered the statutory framework under paragraph 76 of Schedule B1 to the Insolvency Act 1986, which allows the court discretion to extend an administrator's term of office for a specified period. The court noted that this discretion should be exercised in the interests of the creditors as a whole, taking into account whether the purpose of the administration remains likely to be achieved, any prejudice to creditors, and creditors’ views.

The court accepted the Administrators' evidence that liquidation at this stage would be disruptive and costly, frustrating ongoing distributions and CVA processes, and that the statutory purposes of the administrations remain achievable through continued administration and CVA implementation.

The court also considered the impact of the United Kingdom's forthcoming withdrawal from the European Union, recognizing the uncertainty regarding the application of insolvency regulations post-withdrawal. The one-year extension sought was deemed prudent to allow time for clarity on this issue.

Creditors had been notified and raised no objections, supporting the conclusion that no prejudice would arise from the extension. The court therefore exercised its discretion to grant the requested extension.

Holding and Implications

The court GRANTED the application to extend the Administrators' terms of office by 12 months, to 13 January 2019.

This extension allows the Administrators to complete the proof and distribution processes, fulfil approved CVAs, and manage remaining recoveries and claims without the disruption and increased costs that would result from liquidation.

No new legal precedent was established; the decision applies the existing discretion under the Insolvency Act 1986 and relevant insolvency rules to the specific circumstances of this case, including the practical considerations arising from Brexit-related uncertainty.