Aug. 14 (Bloomberg) -- Nortel Networks Corp., the Canadian phone-equipment maker, will sell its remaining assets under the supervision of accounting firm Ernst & Young Inc. following last week’s resignation of Chief Executive Officer Mike Zafirovski and most of the board.

Ontario Superior Court Judge Geoffrey Morawetz today expanded Ernst & Young’s responsibilities to include administering Nortel’s business and operations and conducting sales of company assets.

The company has “no intention of replacing the CEO,” Nortel’s lawyer Derrick Tay told Morawetz during a hearing in Toronto. Nortel is “knee-deep in negotiations” on a sales protocol and needs someone to oversee it, he said.

Nortel, based in Toronto, won approval last month to sell its primary wireless carrier business to Ericsson AB, the world’s largest maker of wireless networks, for $1.13 billion. On Aug. 4, the company gained permission to sell its enterprise solutions business at an auction where Avaya Inc. will make an opening bid of $475 million.

As the company sells its assets, it’s losing people in management, Tay said, in requesting the additional powers for Ernst & Young. Today is Chief Legal Officer Gordon Davies’s last day at the company, Tay said.

Only Nortel’s bondholders expressed concern over the expansion of Ernst & Young’s role. Richard Orzy, a lawyer for a committee representing the holders, told the judge his clients agreed not to oppose the move, though they would have liked more time to consider its implications.

‘A Leg Up?’

“Will there be an impact on the creditors?” he asked. “Will it give a leg up to someone?”

Nortel filed for Chapter 11 bankruptcy protection in January after posting losses of almost $7 billion over two years. The company’s biggest customers, including Verizon Wireless, forced the sale of its wireless unit after voicing concerns over buying new technology because of Nortel’s financial troubles, Chief Strategy Officer George Riedel said in court in June.

Nortel’s units are being sold through auctions designed to boost the sale prices by having a single buyer put in the lead bid, known as a stalking-horse offer. The auction for the wireless unit, held July 24 in New York, involved six rounds of bidding by Nokia Siemens Networks, Ericsson and private-equity firm MatlinPatterson Global Advisers LLC. Ericsson expects to complete the purchase by the end of October.

The case is In the matter of a plan of compromise or arrangement of Nortel Networks Corp., 09-CL-7950, Ontario Superior Court of Justice (Toronto).

To contact the reporter responsible for this story: Joe Schneider in Toronto at jschneider5@bloomberg.net.

Last Updated: August 14, 2009 12:27 EDT