Nortel Judge Approves Revised Deal With Ex-Workers

Nortel Networks Corp. changed the terms of a settlement with former and disabled workers to win the approval of an Ontario judge, the company’s lawyer said.

Ontario Superior Court Judge Geoffrey Morawetz on March 28 threw out the settlement that set aside C$57 million ($56 million) to pay the workers’ benefits until year’s end. He ruled that a provision allowing pensioners and the disabled to seek higher standing among creditors if federal bankruptcy rules are changed was unfair to other creditors. The clause was removed today, and the judge approved the new settlement, Derrick Tay, Nortel’s lawyer, said in a telephone interview.

“People who are dependent on these benefits now have a clear runway to organize their lives and their affairs,” Tay said. “There hasn’t been one case of liquidation where employees received two years of benefits, never.”

The Toronto-based company, once North America’s biggest maker of telecommunications equipment, has been auctioning its assets since filing for bankruptcy protection in Canada and the U.S. in January 2009. The company has raised about $3 billion from the sales, Nortel has said in court papers.

Nortel had threatened to stop paying benefits to about 19,500 former workers and 300 employees on disability after today if the deal wasn’t approved. Under the settlement, workers who were fired will also get as much as C$3,000 severance pay.

Canada’s opposition parties have introduced proposals to change the bankruptcy law so former employees of companies that seek bankruptcy protection don’t lose pensions and disability benefits.

Some of Nortel’s former and disabled workers urged the judge to reject the proposal because they didn’t want to give up their right to sue for additional benefits. The agreement included releases barring future lawsuits.

Those releases were necessary and valid, Morawetz said in his March 28 ruling.

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

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

To contact the editor responsible for this story: David E. Rovella at drovella@bloomberg.net

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