Nortel Spends Big Money in Bankruptcy

Nortel Networks Corp.’s U.S. unit spent $169 million on its bankruptcy case in the first nine months of this year, and there’s no end in sight to the spending on lawyers and advisers for a company that, for all practical purposes, has not existed for years.

The numbers began popping up last Thursday on the bankruptcy docket after a lawyer for Nortel’s Canadian parent pointed out to a judge that the U.S. unit was about eight months in arrears in complying with its Chapter 11 financial reporting requirements. Nortel filed eight months’ worth of financial reports between Thursday and Monday.

Once the pride of the Canadian technology community, Nortel and its international counterparts launched a global liquidation in 2009, battered by the global economic slump. It sold its businesses and patents, ringing up $7.3 billion in the process.

U.S. bankruptcy rules require periodic reporting to the bankruptcy court of the cash position and spending by companies operating under Chapter 11 protection. However, Nortel U.S., which had more than $1 billion in cash at the end of 2011, stopped filing its monthly reports earlier this year as it prepared for an international fight over how to distribute the proceeds of its global liquidation.

The pricey litigation continues. “There’s nothing I can do about that,” said Judge Kevin Gross of the Wilmington, Del., bankruptcy court, who is presiding over Nortel’s Chapter 11 bankruptcy. The judge was speaking at a recent court session following what was supposed to be a last-ditch, closed-door effort to broker a deal to divide the funds.

Anyone hoping for signs of peace—especially the creditors waiting to get paid—would have found little comfort in the judge’s statement. The lawyers and professionals have not been waiting for their money, having collected more than $1.3 billion to date.

Money to pay the professional fees is coming from the coffers of Nortel’s various international units, cash that’s held separately from the sale proceeds. The war chests are dwindling but aren’t yet empty, court records show.

Until Thursday, when the financial reports started to show up on the docket, Nortel U.S. had not accounted for its finances since April—and the numbers filed in April reflected the state of affairs as of the end of January.

Court papers show that Nortel Canada had approximately $143.6 million available cash as of Sept. 13, down from $226 million as of Jan. 18. Nortel U.S. had cash of $827 million at the close of 2013. But by the end of September, Nortel U.S.’s cash fell to $658 million despite there no being no business to run.

Lawyers for Nortel U.S. couldn’t be reached for comment on the spending or the company’s delay in filing its financial reports.

Write to Peg Brickley at [email protected]