England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
COMPANIES COURT
THE HON MR JUSTICE PATTEN

		Royal Courts of Justice Strand, London, WC2A 2LL
		11th February 2009

The Hon Mr Justice Patten :

1. This is an application by the Joint Administrators of various companies in the Nortel group of companies ("the Nortel Group") for the court to send a letter of request to the courts of a number of Member States in the EC asking those courts to put in place arrangements under which the Joint Administrators will be given notice of any request or application for the opening of secondary insolvency proceedings in respect of any of the companies in administration ("the Companies"). The letter will also request the courts to which it is sent to permit the Joint Administrators to make submissions on any such applications in respect of the potential damage which secondary proceedings might have on the interests of the estate and the creditors of the relevant Companies.
2. The Companies are those in the Nortel Group which operate in Europe, the Middle East and Africa. The Nortel Group is a global supplier of what are described in the evidence as networking solutions: i.e. telecommunications, computer networks and associated software.
3. On 14^th January 2009 various Canadian companies in the Nortel Group including Nortel Networks Corporation ("NNC"), the ultimate parent company of the Nortel Group, sought protection in Canada under the provisions of the Companies Creditors Arrangement Act. At the same time some of NNC's direct and indirect US subsidiaries also filed voluntary petitions pursuant to Chapter 11 of the US Bankruptcy Code.
4. On the same day Blackburne J made orders placing each of the Companies into administration. His orders include a determination that the EC Regulation on Insolvency Proceedings (1346/2000) ("the EC Regulation") applies and that the English administration proceedings are main proceedings within the meaning of Article 3 of the EC Regulation. Consistently with this, the letters of request sought on this application are directed to secondary insolvency proceedings under Article 3(2) which may be opened in other Member States limited to the assets of the various Companies situated in those territories.
5. Further to the administration orders, Blackburne J also made a number of Day One Orders authorising the Joint Administrators in their discretion to make payments out of their assets to employees and preferential creditors of the relevant Companies corresponding to the amounts they would receive in the event that secondary insolvency proceedings were to be commenced in other Member States. He also authorised the Joint Administrators to apply to the relevant judicial authorities in any other country for such assistance as they consider they may require in connection with the performance of their functions as administrators.
6. The evidence filed by Mr Alan Bloom on behalf of himself and the other Joint Administrators indicates that, as a result of the structure of the Nortel Group and what Mr Bloom describes as the highly integrated trading relationships between group companies, the Joint Administrators are of the view that the best option available to maximise value for the creditors of each of the Companies is through a co-ordinated re-organisation of the entire Nortel Group.
7. The creditors and suppliers of the Companies have each been sent notification of the appointment of the Joint Administrators as required by Article 40 of the EC Regulation and proposals based on the re-organisation of the Group are to be put to the creditors of each of the Companies for their consideration and approval by 24^th March 2009. But the Joint Administrators wish to avoid secondary insolvency proceedings being opened in respect of any of the Companies because this is likely to impede the global restructuring which is planned and will, in their view, reduce the value ultimately realised for the benefit of the Companies' creditors.
8. This application is therefore made with a view to obtaining assistance from the courts of various Member States in the form of prior notification to the Joint Administrators of any request or application for the opening of secondary insolvency proceedings in those jurisdictions and the giving to the Joint Administrators of an opportunity to be heard on any such application. This is intended to enable them to explain to the relevant court why such proceedings would not be in the interests of the creditors. It is not, of course, the function of this court or the purpose of the letters of request to indicate to the courts to which the letters are sent how they should determine any application to opening secondary proceedings.
9. The High Court has an inherent jurisdiction to issue a letter of request to a foreign court in appropriate circumstances and the only issue which I have to decide is whether I should exercise this jurisdiction in this particular case.
10. The request for the assistance of the various foreign courts stems directly from the duty of co-operation imposed by Article 31(2) of the EC Regulation. This provides that:

"Subject to the rules applicable to each of the proceedings, the liquidator in the main proceedings and the liquidators in the secondary proceedings shall be duty bound to cooperate with each other."

11. Although framed in terms of co-operation between office-holders, the duty has been treated by the courts of Member States as incorporating or reflecting a wider obligation which extends to the courts which exercise control of insolvency procedures in their respective jurisdictions. So in Re Stojevic (9 November 2004, 28 R 225/04w) the Vienna Higher Regional Court said that:

"Although the wording of Art 31 of the EU Insolvency Regulation only obliges the trustees in bankruptcy to cooperate, this also applies to the court according to the prevailing opinion and under the UNCITRAL model law."

12. But for this obligation to be effective it is obviously desirable for the court dealing with an application to open secondary insolvency proceedings to be provided with the reasons why such proceedings might have an adverse impact on the main proceedings. An example of the advantage of permitting the Joint Administrators in English main proceedings to be heard in relation to the opening of secondary proceedings in another Member State can be found in the decision of the Court of Appeal of Versailles in Rover France SAS [2006] I.L.Pr. 32. The court in its judgment at paragraphs 44-47 said this:

"44. The Advocate General requests the Court to apply the Regulation in its entirety, and therefore to open secondary insolvency proceedings pursuant to Art 27.

45. However, the opening of secondary insolvency proceedings is only desirable if it is purposeful, which the applicant must demonstrate.

46. Messrs Lomas and Hunt, in their official capacity [as joint administrators appointed by the English High Court], argue without contradiction that the insolvency proceedings are progressing without difficulty, and that they are preserving the interests of all concerned; they hold that single proceedings permit continuation of activity, and hence sale of vehicles over a longer period, and allow coordination of these sales operations throughout the territory of Europe; in their eyes secondary insolvency proceedings would multiply costs and formalities to no purpose.

47. It does not appear to be demonstrated that the opening of secondary insolvency proceedings would offer advantages in this case, in particular by improving the protection of local interests or the realisation of assets."

The application to open secondary proceedings was therefore refused.

13. There is, of course, provision under Article 33(1) of the EC Regulation for the court which has opened the secondary proceedings to stay the process of liquidation at the request of the liquidator in the main proceedings subject to suitable measures being taken to guarantee the interests of creditors in the secondary proceedings. This would therefore halt the realisation of assets located in the State of the secondary proceedings. But it would not prevent the continuation of winding-up proceedings in the Member States in which each of the Companies is incorporated (see Re Collins & Aikman, Higher Regional Court of Graz, 20 October 2005, 3 R 149/05, reported in NZI 2006 vol 11 p.660) and the effect of the commencement and continuation of such proceedings is likely to be to cause the relevant Company to cease to trade save for the purposes of winding up. The Joint Administrators take the view that the continuation of trading is necessary in order to achieve the re-organisation of the Nortel Group which is planned.
14. In these circumstances, it seems to me highly desirable that the assistance of the foreign courts specified in the Schedule to the draft order should be sought with a view to enabling the Joint Administrators to be heard prior to the opening of any secondary insolvency proceedings in these jurisdictions and I will therefore authorise the sending of appropriate letters of request to the judicial authorities in those States.