Nortel group, Re (Global Settlement)

When administrators seek the court’s approval of a particularly momentous compromise within their powers, the court examines whether they genuinely consider it beneficial to the company and its creditors, have acted rationally, and are unaffected by conflicts of interest. The court does not substitute its own commercial judgment merely because it might have chosen differently.

Because approval prevents a later challenge, administrators must disclose all relevant material and their reasons. Approval should be withheld if the evidence leaves doubt about the proposal’s propriety. A global insolvency settlement may rationally exchange a potentially higher recovery for certainty, prompt distributions, reduced costs and the elimination of substantial litigation risks.

The administrators of 19 European, Middle Eastern and African companies in the Nortel group, together with the conflict administrator of a French group company, applied for directions approving implementation of a global settlement. The settlement would resolve most disputes concerning the allocation of approximately US$7.3 billion in global asset-sale proceeds, pension liabilities, intra-group claims and the division of assets between the French company’s main and secondary insolvency proceedings.

The administrators had already exercised their discretion to enter the agreements. They sought the court’s approval because the decision was exceptionally significant to the administrations. The central questions were whether the court should scrutinise the decision by analogy with its jurisdiction over momentous trustee decisions, and whether the settlement represented a lawful and rational exercise of the office-holders’ powers.

1. The application was granted. Paragraph 60 of Schedule B1 and paragraph 18 of Schedule 1 to the Insolvency Act 1986 empowered the administrators to cause the companies to enter into the settlement. The same applied to the conflict administrator acting for the French company.

2. The settlement was a truly momentous decision because of the size and complexity of the group’s affairs, the value of the sale proceeds and the settlement’s significance to each administration. The office-holders had decided how to exercise their discretion and sought the court’s blessing rather than surrendering that discretion.

3. By analogy with the second category identified in Public Trustee v Cooper, the court’s function was limited. It had to ensure that the proposed exercise was within the administrators’ powers, that they genuinely believed it would benefit the companies and their creditors, and that they had acted rationally and without conflict. The court could not withhold approval merely because it might itself have made a different commercial decision.

4. Since approval would preclude a subsequent creditor challenge, the administrators had to place all relevant material before the court, including their reasons. The court had to act cautiously and withhold approval if the evidence left doubt about the proposal’s propriety.

5. The evidence, confidential legal advice and submissions established that the administrators and conflict administrator firmly and genuinely regarded the settlement as beneficial. Their conclusions were properly and rationally formed. They were entitled to balance the discount from possible recoveries against the risk of adverse appellate outcomes, inconsistent Canadian and United States decisions, prolonged claims-resolution processes, substantial further costs and delayed distributions.

6. The settlement also produced substantial company-specific benefits. It secured distributions, resolved pension and intra-group exposures, provided enhanced or protected returns for particular estates and was expected to permit most of the relevant companies to pay unsecured debts in full, excluding interest. The administrators and conflict administrator were therefore approved and authorised to implement the global settlement.

not stated in the judgment.