Nortel Networks UK Ltd, Re

The court may authorise an administrator to distribute to unsecured, non-preferential creditors where the distribution advances the purpose of the administration and serves creditors as a whole. The assessment is fact-sensitive and includes the protection of secured and preferential creditors, realistic alternatives, prior statements to creditors, costs and the effect on any exit route.

An administrator’s statutory power to make payments outside the ordinary distribution scheme cannot be used to create a general claims-adjudication and distribution process which disapplies mandatory insolvency rules. Where that flexibility is required, a properly approved company voluntary arrangement may modify the statutory scheme. In cross-border administrations, procedures may distinguish assets and distributions according to the applicable main and secondary insolvency regimes.

The Nortel EMEA Companies were placed into administration in England in January 2009 as part of a group-wide insolvency and restructuring. The Administrators sought authority to establish claims procedures and make distributions, including distributions from sale proceeds held in escrow following a global asset sale.

The application concerned three groups: NNUK; the EMEA Companies other than NNUK and NNSA; and NNSA, which was also subject to French secondary insolvency proceedings. The Administrators proposed an ordinary administration distribution for NNUK and company voluntary arrangements for the other companies, reflecting assurances previously given to local creditors and the division between main and secondary proceedings assets. The central issues were whether the proposed procedures and distributions were authorised by the Insolvency Act 1986 and the Insolvency Rules 1986, and how the cross-border arrangements should operate.

1. The court granted the Orders made on 23 July 2015. The Administrators were permitted to establish claims procedures and pursue distributions designed to protect the companies’ interests in the escrowed sale proceeds.

2. Under paragraph 65(3) of Schedule B1 to the Insolvency Act 1986, permission to distribute to unsecured non-preferential creditors is governed by the interests of creditors as a whole, the purposes and proper conduct of the administration, and the practical consequences of the proposed distribution. Relevant considerations include the position of secured and preferential creditors, realistic alternatives, prior proposals or assurances, the nature and cost of the distribution, and its effect on any exit route.

3. Permission was appropriate for NNUK. It had no secured creditors, its preferential creditors had been paid, a claims process was necessary to protect its share of the escrowed funds, and an administration distribution was quicker and more proportionate than liquidation. The notice under Rule 2.95 could specify a near-term proving date, provided an interim distribution was genuinely intended and full provision was made for disputed proofs.

4. Rule 2.97(2) permits dividends during pending challenges to proofs only where disputed claims are fully provided for. If the maximum value of a disputed claim cannot be agreed, further directions should be sought.

5. Paragraph 66 of Schedule B1 permits payments outside the paragraph 65 scheme where they are likely to assist the purpose of the administration. It does not, however, authorise a comprehensive process for calling in and adjudicating all claims while bypassing mandatory rules on priority, pari passu distribution, set-off, currency conversion, interest and dividends.

6. The court had no inherent power to disapply or vary that statutory scheme. Company voluntary arrangements were therefore an appropriate mechanism for the other EMEA Companies, because approval by creditors could validly modify the statutory treatment of claims and distributions. The proposed arrangements could provide for claims adjudication, appeals, bar dates and different treatment of main-proceedings and secondary-proceedings assets.

7. For NNSA, the French secondary proceedings governed assets situated in France, while assets outside France were to be dealt with under English law. The Administrators could appropriately commence a separate UK claims process to protect creditors who had not claimed in France. The court accepted the proposed CVA route and retained liberty for further directions.