Nortel Networks UK Ltd & Ors, Re

The court may use its power to give directions to an administrator to require potential administration-expense claims to be notified by a specified date and to permit distributions to lower-ranking creditors without provision for expense claims that are notified later. Such directions do not extinguish statutory rights or alter the insolvency waterfall where late claimants retain a right to be paid from assets remaining at the end of the administration. The discretion must be exercised justly, balancing protection of potential expense claimants against the efficient conclusion of the insolvency. Permission to distribute to unsecured creditors should be granted where that course accords with creditors’ interests as a whole and the administrators’ functions.

The administrators of 18 Nortel Group companies sought directions concerning potential claims which might rank as administration expenses and therefore take priority over unsecured creditors. The administrations had continued since 2009, and uncertainty about unasserted claims threatened to delay distributions following receipt of the companies’ shares of the Lockbox Proceeds.

They also sought permission to distribute directly to unsecured creditors in the administrations of Nortel Romania and Nortel Finland, instead of implementing company voluntary arrangements. The central issues were whether the court had jurisdiction to establish a bar-date regime for expense claims and whether the proposed distributions were permissible and just.

1. Directions concerning expense claims. Paragraph 63 of Schedule B1 to the Insolvency Act 1986 gives the court a broad power to give directions in connection with an administrator’s functions. That power may be used to assist administrators in identifying liabilities which rank as administration expenses and to authorise distributions to unsecured creditors without regard to expense claims that have not been asserted by a specified date.
2. The statutory provisions for proving unsecured debts and dealing with late proofs do not apply to administration expenses. Administration expenses are a distinct category from unsecured provable debts. The court may therefore devise a bespoke procedure where the statutory rules contain no express mechanism for requiring expense claims to be made by a particular date.
3. The orders did not extinguish expense claimants’ legal rights or vary the statutory waterfall. A late claimant could still assert the claim and be paid from assets remaining after earlier distributions, if sufficient funds remained. Before the administration ended, an expense creditor had no statutory right to payment from particular assets or at a particular time.
4. The jurisdiction was consistent with the principles identified in Re Lehman Brothers International (Europe) (No 4) [2017] UKSC 38. The directions reflected established insolvency practice, were reasonably necessary to progress the administrations, and protected claimants through notice, reserves and a dispute-resolution process. The relevant discretion was whether the directions were just, balancing protection of potential expense claimants against the need to conclude the administrations efficiently.
5. The eight-year duration of the administrations, the publicity given to them, the specific notice provided to identified claimants, the opportunity to object, and the four-month period before the bar date made the regime proportionate. The orders were accordingly made.
6. Nortel Romania and Nortel Finland. Permission under paragraph 65(3) of Schedule B1 and rule 2.97(2) of the 1986 Rules was granted for direct distributions. The administrators had concluded that CVAs were not cost-effective and that unsecured creditors were likely to be paid in full. Direct distribution was therefore consistent with creditors’ interests as a whole and with the administrators’ functions and duties.