Ernst & Young LLP 1 More London Place London SE1 2AF Tel: 020 7951 2000 Fax: 020 7951 1345 www.ey.com/uk TO ALL KNOWN CREDITORS 11 August 2015 Ref: MLP/7E/SJH/DM/ST/LO3539/PCF16 Saskia Lawrence Direct line: +44 (0) 20 7951 1507 Email: [email protected]Dear Sirs Nortel Networks S.A. (In Administration and in Liquidation Judiciaire) (the “Company”) High Court of Justice of England and Wales, Chancery Division, Companies Court Case number 539 of 2009 We write, in accordance with Rule 2.47 of The Insolvency Rules 1986, to provide creditors with a thirteenth report on the progress of the Administration (the “Report”). This Report covers the period from 14 January 2015 to 13 July 2015 and should be read in conjunction with the Joint Administrators’ previous reports dated 13 August 2009, 13 February 2010, 12 August 2010, 11 February 2011, 12 August 2011, 9 February 2012, 6 August 2012, 6 February 2013, 6 August 2013, 6 February 2014, 6 August 2014 and 10 February 2015 as well as the Joint Administrators’ Statement of Proposals dated 23 February 2009. Additional copies of this Report, and the previous reports referred to, can be made available on request or can be obtained at the following address: www.emeanortel.com The Company entered administration (the “Administration”) on 14 January 2009 when A R Bloom, A M Hudson, S J Harris and C J W Hill of Ernst & Young LLP, 1 More London Place, London SE1 2AF, were appointed to act as joint administrators (the “Joint Administrators”) by an order (the “Order”) of the High Court of Justice of England and Wales (the “Court”), following an application made by the Company’s directors. This was part of a wider restructuring of the Nortel group of companies. Nortel Networks Corporation (“NNC”), the ultimate parent company of the Nortel group, Nortel Networks Limited (“NNL”) and certain of its other Canadian subsidiaries filed an application for creditor protection under the Companies’ Creditors Arrangement Act (“CCAA”) in Canada to facilitate a comprehensive business and financial restructuring. Nortel Networks Inc (“NNI”), Nortel Networks Capital Corporation and a number of other US Nortel group companies filed petitions in the United States under Chapter 11 of the US Bankruptcy Code.
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Ernst & Young LLP1 More London PlaceLondon SE1 2AF
Nortel Networks S.A.(In Administration and in Liquidation Judiciaire) (the “Company”)
High Court of Justice of England and Wales, Chancery Division, Companies CourtCase number 539 of 2009
We write, in accordance with Rule 2.47 of The Insolvency Rules 1986, to provide creditors with athirteenth report on the progress of the Administration (the “Report”). This Report covers the periodfrom 14 January 2015 to 13 July 2015 and should be read in conjunction with the JointAdministrators’ previous reports dated 13 August 2009, 13 February 2010, 12 August 2010,11 February 2011, 12 August 2011, 9 February 2012, 6 August 2012, 6 February 2013,6 August 2013, 6 February 2014, 6 August 2014 and 10 February 2015 as well as the JointAdministrators’ Statement of Proposals dated 23 February 2009. Additional copies of this Report, andthe previous reports referred to, can be made available on request or can be obtained at the followingaddress:
www.emeanortel.com
The Company entered administration (the “Administration”) on 14 January 2009 when A R Bloom,A M Hudson, S J Harris and C J W Hill of Ernst & Young LLP, 1 More London Place, London SE1 2AF,were appointed to act as joint administrators (the “Joint Administrators”) by an order (the “Order”) ofthe High Court of Justice of England and Wales (the “Court”), following an application made by theCompany’s directors.
This was part of a wider restructuring of the Nortel group of companies. Nortel Networks Corporation(“NNC”), the ultimate parent company of the Nortel group, Nortel Networks Limited (“NNL”) andcertain of its other Canadian subsidiaries filed an application for creditor protection under theCompanies’ Creditors Arrangement Act (“CCAA”) in Canada to facilitate a comprehensive business andfinancial restructuring. Nortel Networks Inc (“NNI”), Nortel Networks Capital Corporation and anumber of other US Nortel group companies filed petitions in the United States under Chapter 11 ofthe US Bankruptcy Code.
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At the same time as the appointment of the Joint Administrators, the Court, following applicationsmade by the directors of each company, made administration orders in respect of 18 other Nortelgroup companies based in the Europe, Middle East and Africa region (“EMEA”). Article 3 of the ECRegulation on Insolvency Proceedings 1346/2000 (the “EC Regulation”), states that the relevantcourt of the EU Member State in which the centre of main interests (“COMI”) of a company is situatedhad jurisdiction to open main insolvency proceedings in respect of that company. In the case of the 19EMEA group companies (the “EMEA Companies”), the Court was satisfied that each had its centre ofmain interests in England and, as such, the Court had jurisdiction to open main insolvencyproceedings, namely administration, in respect of each company. Details of all 19 companies thatentered administration are provided at Appendix 1.
The Nortel group of companies (the “Group”) reports in US dollars (“US$”), and accordingly allamounts referred to in this report are in US$ unless otherwise stated.
The official version of this report is in English. In the event of a conflict between the English versionand any translated version, the English version shall be the definitive version to rely upon.
Please refer to the disclaimer at the end of the principal section of this report.
Secondary Proceedings
In order to facilitate the progress and purpose of the administration, the Joint Administrators made arequest to the Commercial Court of Versailles, resulting in the placing of the Company into liquidationjudiciaire on 28 May 2009. The conduct of the business significantly located in France, has, sinceMay 2009, been under the control of Maître Cosme Rogeau (Liquidateur Judiciaire) (the “Liquidator”)and Maître Frank Michel (Administrateur Judiciare), for the period of his appointment as such,(together the “French Officeholders”).
The Report does not seek to set out matters that are specific to the Secondary Proceedings, but setsout the progress of the wider Administration. The Report does not contain details of realisation of localassets, agreement of creditor claims or the wind down of the Company subsequent to the appointmentof the French Officeholders, which is a matter for the French Officeholders in the context of theirappointments.
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1. Executive Summary of Progress of the Administration
Purpose of the Administration
The Joint Administrators continued to trade the Company's businesses with a view to achieving eithera rescue of the Company as a going concern or a better result for the Company’s creditors as a wholethan would be likely if the Company were wound up. In 2009, it became clear that, owing to thefinancial and market pressures facing the Nortel businesses, the sale of all businesses would benecessary and a rescue of the Company as a going concern would not be possible.
Sale of Businesses and Assets
The disposals of the Group’s global businesses and principal assets were completed in 2011. Theheadline aggregate gross sale proceeds of the global disposals, including the gross sale proceeds fromthe sale of the residual Intellectual Property, totals approximately $7.5 billion (before transactioncosts, adjustments and escrow balances) and in accordance with the agreed basis for the globaldisposals, the sale proceeds remain in escrow pending allocation within the Group.
Next Steps
The key remaining issues for the Company are to deal with the Financial Support Direction (“FSD”)claims of the UK Pensions Regulator (“TPR”) asserted against the Company and certain of the EMEACompanies, the allocation of the sale proceeds amongst the Group (“PPA”), the winding-up of theaffairs of certain of the Company’s subsidiary companies in EMEA, including the return of surplusassets to the Company and the development of an appropriate process to agree creditors’ claims anddistribute available funds to them.
The Joint Administrators have continued to work with the Liquidator and will continue to provideinformation to the Company’s creditors’ committee (the “Committee”) in order to update it on eventsand the strategy adopted.
Further information is contained in the sections that follow.
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2. Receipts and Payments Account
Attached at Appendix 2 is the Joint Administrators’ receipts and payments (“R & P”) account for theperiod from 14 January 2015 to 13 July 2015. The R & P is separated between the pre and postLiquidation periods. Control of the Company’s assets situated in France passed to the FrenchOfficeholders upon the opening of the Liquidation.
The Joint Administrators maintain accounts in the UK on behalf of and in the name of the Companyand the balance of those accounts at the time of the appointment of the French Officeholders wastransferred to the accounts controlled by the French Officeholders. The R & P shows only the cash andtransactions in the control of the Joint Administrators.
The R & P account is a statement of cash received and cash paid out and does not reflect estimatedfuture realisations or costs, including proceeds from the sales of businesses held in escrow pendingallocation amongst the Group Companies.
Further detailed notes are provided in Appendix 2.
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3. Joint Administrators’ Remuneration and Disbursements
It is the responsibility of the Committee to approve the Joint Administrators’ fees.
During the period from 29 November 2014 to 29 May 2015 the Joint Administrators incurred timecosts of GB£68,057.20 as well as transaction time costs of GB£649.35 in respect of the same period.
We continue to apportion between the EMEA Companies certain other time costs for workstreamsundertaken for the benefit of all EMEA entities. During the period from 29 November 2014 to29 May 2015, GB£393,513.07 has been allocated to the Company in respect of theseapportionments.
An analysis of the time spent is at Appendix 3.
Payments to Other Professionals
The Joint Administrators continue to engage the following professional advisors to assist them in theAdministration. These professionals work on a time cost basis and internal review processes areundertaken to assess their invoices. During the period from 14 January 2015 to 13 July 2015 thefollowing has been paid:
Herbert Smith Freehills LLP – GB£313,289.61 (Legal Advisors)
Please note the above legal fees figures have been converted using monthly spot rates. As such, theremay be a minimal difference between these figures and the figure reported in our R&Ps in Appendix 2(which uses an average spot rate over the period 14 January 2015 to 13 July 2015).
Since the Joint Administrators’ appointment, various professional costs (and in particular legal costs)have been incurred for the benefit of EMEA as a whole in respect of the various business sales and thePPA process. These costs have mainly been paid by Nortel Networks UK Limited (“NNUK”) and havenot yet been charged to the individual entities. At the conclusion of the PPA process, it is intendedthat these costs will be apportioned between the EMEA entities in proportion to each company’sbenefit arising from the global sale proceeds and realisations from North American claims settlements.
The costs of professional advisors who assist the Company with discrete matters in the usual course ofbusiness (for instance, debt collection proceedings) are not included above.
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4. Future Conduct of the Administration
Purchase Price Allocation
On 12 May 2015, the judgments of the US and Canadian courts in relation to the allocation disputewere issued. Both judgments provide for the allocation of the c.US$7.5 billion lockbox proceedsamongst the various Nortel selling entities based on the ratio of each entity’s pre-filing liabilities to thetotal level of such liabilities in the Nortel group (the “pro-rata outcome”).
The judgments can be found at http://www.ontariocourts.ca/scj/files/judgments/2015ONSC2987.htmand http://www.deb.uscourts.gov/judges-info/opinions/.
Subsequently, certain of the US parties, including the Nortel US Debtor, filed motions in both the UScourt and the Canadian court for reconsideration of the judgments issued by each of the Judges. Themotions for reconsideration constitute steps taken before formal appeals, and ask the Judges toreconsider their own judgments. The time for filing appeals against the judgments was suspendedwhilst the motions for reconsideration were dealt with.
The motions for reconsideration were heard on the 25 June 2015 and a memorandum order wasissued by the Judges on 6 July 2015 which granted certain of the US parties’ requests for clarificationand denied others.
With the Courts recognising that the US parties are unhappy with the allocation opinions and order,they urged the parties to discuss how to refine the issues in order to avoid any appeals and theexpenditure of time and money that may result. Since then, certain of the US parties, including theNortel US Debtor, have filed notices to the Courts appealing the allocation opinions and order dated 12May 2015 and the memorandum order dated 6 July 2015.
The Joint Administrators continue to consider carefully what steps should be taken in the light of thejudgments issued and subsequent notices of appeal.
Conflicts Administrator
Whilst the issuing of the judgments is a helpful milestone in the context of the administration of theCompany, the judgments themselves are disappointing when considered from the Company’sperspective. The pro rata outcome that has actually found favour with the Judges was not based on atheory that was advanced by any of the Nortel estates, being the EMEA Companies, the US Debtor orthe Canadian Debtor.
Assuming that the pro rata allocation is applied consistently across all entities the outcome is likely toprovide a return to the Company that is significantly lower than that which might be generated if eitherthe EMEA Companies’ “contribution based approach” or the US Debtor’s “revenue based approach”were to find favour. However, on the basis we expect the pro rata outcome to be applied we expect it islikely to generate a better return for the Company's creditors than would be the case were theCanadian “ownership based approach” to find favour.
Therefore the Joint Administrators, and the Liquidator, must consider carefully what steps should betaken in the light of the judgments issued, including whether or not to appeal the judgments.
The Joint Administrators are conscious that when considering the judgments and the steps that shouldproperly be taken by the Company, it is possible that the Company’s interests may now diverge from
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the majority of the EMEA Companies and that there may be conflicts between the positions that maybe taken by the majority of EMEA Companies and the Company.
The Joint Administrators applied to the High Court in London and sought the appointment of a furtheradministrator to act as a “conflicts administrator”. This step is normal in the administration of groupcompanies where the interests of one entity may diverge from the others.
The High Court appointed Stephen Taylor (the “Conflicts Administrator”) on 2 June 2015. Formalnotice of the Conflicts Administrator’s appointment is attached to this report. The role of the ConflictsAdministrator is to act on behalf of the Company in determining whether to appeal the 12 May 2015judgments, conduct any such appeal by the Company, bring any claim the Company may have againstanother EMEA Company, and any other matters that may be agreed in writing with the JointAdministrators.
A report by the Conflicts Administrator in respect of matters he has dealt with since his appointment isenclosed with this report.
The Pensions Regulator in the UK
TPR, a UK statutory body, has made claims against several Nortel group companies in EMEA, includingthe Company (“Target Companies”), and North America. Its Determinations Panel issued a decision inJune 2010 that FSDs should be issued, which would require the Target Companies to provide financialsupport to the Nortel Networks UK Limited pension scheme (the “UK Pension Scheme”). The UKPension Scheme is estimated to have a deficit of c. GB£2.1 billion.
The Joint Administrators of the Target Companies have referred the decision of the DeterminationsPanel to the Upper Tribunal (the “Reference”). The Reference challenges this decision on behalf of theTarget Companies over which the Joint Administrators are appointed. Pending a determination of theReference by the Upper Tribunal, no FSD may be issued to the Target Companies. The Referenceproceedings are currently stayed.
Any liability in respect of a FSD or Contribution Notice issued against a Target Company would rank asa provable debt alongside those of unsecured creditors.
It has not been determined that any Nortel entity in EMEA is under any obligation to make acontribution to the UK Pension Scheme.
The Joint Administrators will continue to vigorously defend the Target Companies’ positions in theReference and it is not at all certain that any FSDs or Contribution Notices will ultimately be imposed.
The Joint Administrators of the Target Companies have engaged with TPR to ascertain the possibilityof resolving certain of the FSD claims on a consensual basis. These discussions are ongoing and theJoint Administrators will update creditors as appropriate.
Distributions to Creditors
In light of the judgments handed down by the US and Canadian courts, the Joint Administratorsconsider that it is now the time to commence a formal process for the calling for and adjudication ofclaims.
On 23 July 2015, the Joint Administrators received the permission of the English High Court ofJustice to promulgate a Company Voluntary Arrangement (“CVA”) in respect of the Company. The CVA
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will, amongst other things, establish a bar date for the filing of claims and a mechanism for makingdistributions to creditors. The Joint Administrators plan to provide appropriate information to creditorsin respect of the CVA (which will be subject to creditors’ approval) later in 2015.
The Joint Administrators are, however, still neither able to confirm the quantum of the pre-appointment creditor claims nor the likely return for individual creditors or classes of creditor. Thesewill be determined for the most part by the following key factors:
a. Outcome of a formal proof of debt procedure;
b. The imposition of any FSD on the Company by TPR. As set out above, it is not certain as towhether any such FSD will actually be imposed, nor is there clarity as to the quantum of thepotential liability being sought. It should be noted that the Joint Administrators continue todefend the Company’s position in respect of the action by TPR. The Joint Administrators arehopeful that the imposition of any such FSD can be successfully resisted;
c. Finalisation of quantum of certain complex liabilities and claims;
d. Finalisation of ranking of creditor claims which will be determined as part of the distributionprocess; and
e. The outcome of the PPA process.
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5. Other Matters
The Committee
The committee of creditors was formed at the creditors’ meeting held on 23 March 2009 (the“Creditors’ Committee”). The Joint Administrators continue to provide detailed information to themembers of the Creditors’ Committee as the Administration progresses and matters evolve (includingan analysis of their time costs for approval). The Joint Administrators will continue to keep theCreditors’ Committee apprised of developments.
The Prescribed Part
Section 176A of the Insolvency Act 1986 does not apply to this Administration as there is noqualifying floating charge security, and as such there is no Prescribed Part to be set aside for non-preferential creditors.
Liquidator in the Secondary Proceedings
The Liquidator, Maître Cosme Rogeau, manages the affairs, business and assets of the Company thatare situated in France. Maître Rogeau can be contacted at 26 rue Hoche, Cedex 3533, 78035Versailles CX, France.
Extensions of the Administration
In November 2013, the administration order in respect of the Company was extended to 13 January2016 to allow the Joint Administrators to continue to administer the estate and achieve the purpose ofthe administration.
French Employee Claims
Please note that the claims against the Company are being dealt with by the Liquidator in France.
According to the information provided to us, certain former employees of the Company have broughtclaims against the Liquidator, before the Industrial Tribunal of Versailles (the “Tribunal”), disputingtheir redundancies, claiming further damages for wrongful dismissal, and requesting payment of thedeferred departure indemnity set out in the social plan (IAD Différée) (the "Deferred IAD").
By a decision of 10 December 2012 the Tribunal found for certain of the former employees andordered the Company to record in its liabilities, damages due to these former employees for wrongfuldismissal. The Liquidator of the Company has appealed this decision and the Court of Appeal hearing,initially scheduled on 10 April 2014, has been postponed to 24 September 2015. A similar decision inrelation to certain other former employees of the Company was handed down on 14 October 2013 andan appeal has also been lodged for the same hearing date (24 September 2015). The claims of afurther number of former employees, on similar grounds, are scheduled to be heard by the Tribunal on29 February 2016.
A number of individual claims of employees are also ongoing and being dealt with by the Liquidator ofthe Company.
Separately, 16 workers filed claims before the Industrial Tribunal of Châteaudun against the Companyand Flextronics in relation to the requalification of their status into employees with indefinite termcontracts. A hearing took place on 14 February 2014. The Court decision of 15 December 2014
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condemned the Company to pay an aggregate amount of circa. EUR154,000 plus costs. The Liquidatorof the Company is currently contemplating whether to appeal the decision.
Approximately 140 former employees of the Company have brought proceedings against theLiquidator, before the Commercial Court of Versailles. These proceedings include a request that theCommercial Court of Versailles orders the immediate payment of the Deferred IAD, and a request for adeclaration that the secondary proceedings has the exclusive right to sums due to the Company fromthe sales of the businesses (see section 1 above). The Liquidator has included the Joint Administratorsof the Company as further defendants to these proceedings (intervention forcée). The JointAdministrators contested the jurisdiction of the Commercial Court of Versailles to decide on theseissues. At a hearing on 10 October 2013 the Commercial Court of Versailles decided, in a decisionissued on 21 November 2013, to refer a number of questions to the Court of Justice of the EuropeanUnion (“ECJ”) and to stay the proceedings pending the determination of such questions by the ECJ.
A hearing took place in the First Chamber of the ECJ on 6 November 2014, at which the variousparties, including the Joint Administrators, were represented. On 11 June 2015 the ECJ determinedthat assets should be allocated between main and secondary proceedings exclusively in accordancewith article 2(g) of the EC Regulation, based on the location of the assets at the date of opening ofsecondary proceedings (for the Company, 28 May 2009). In respect of the matters before it, theCommercial Court of Versailles will now be required to implement the ECJ’s decision as it relates to theCompany.
The Liquidator has been contemplating setting up a fiducie (or trust arrangement) for the purpose offinancing the defence of the interests of the Company in the context of the PPA. An order of theSupervisory Judge of the Company dated 12 September 2012 authorised the fiducie arrangement oncondition that the contract be ratified by the Commercial Court of Versailles. The attorney of certain ofthe former employees of the Company filed an opposition to this order. This opposition was dismissedby the Commercial Court of Versailles. The attorney of certain of the former employees of theCompany also filed a separate claim against the Liquidator on the basis of the fact that the hearingbefore the Supervisory Judge of the Company for the approval of the fiducie never took place. TheCourt of Appeal of Versailles rejected this claim on 18 December 2014. This decision of the VersaillesCourt of Appeals has been appealed before the French Supreme Court (Cours de Cassation) by theattorney of the former employees.
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The Joint Administrators will report to creditors again in six months’ time or at the conclusion of theAdministration, whichever is sooner.
Yours faithfullyfor Nortel Networks S.A. (In Administration and in Liquidation Judiciaire)
S J HarrisJoint Administrator
Enc: Company informationJoint Administrators’ Receipts and Payments AccountSummary of Joint Administrators’ Time CostsJoint Administrators’ Policy on Fees and DisbursementsForm 2.40B Notice of appointment of replacement/additional administratorConflict Administrator’s Report to CreditorsForm 2.24B Administrators’ Progress Report
For the Companies listed below, The Institute of Chartered Accountants in England and Wales in the UK authorises A R Bloom, S J Harris, C J W Hilland S J Taylor to act as Insolvency Practitioners under section 390(2)(a) of the Insolvency Act 1986 and the Association of Chartered CertifiedAccountants in the UK authorises A M Hudson and D M Hughes to act as Insolvency Practitioners under section 390(2)(a) of the Insolvency Act1986.
The affairs, business and property of the Companies are being managed by the Joint Administrators, A R Bloom, S J Harris, A M Hudson and C J WHill who act as agents of the Companies only and without personal liability.
The Companies are Nortel Networks UK Limited; Nortel GmbH; Nortel Networks France S.A.S.; Nortel Networks N.V.; Nortel Networks S.p.A.; NortelNetworks B.V.; Nortel Networks Polska Sp. z o.o.; Nortel Networks Hispania, S.A.; Nortel Networks (Austria) GmbH; Nortel Networks s.r.o.; NortelNetworks Engineering Service Kft.; Nortel Networks Portugal, S.A.; Nortel Networks Slovensko s.r.o.; Nortel Networks Oy; Nortel NetworksRomania SRL; Nortel Networks AB; Nortel Networks International Finance & Holding B.V..
The affairs, business and property of Nortel Networks (Ireland) Limited are being managed by the Joint Administrators, A R Bloom and D MHughes, who act as agents of Nortel Networks (Ireland) Limited only and without personal liability.
The affairs, business and property of Nortel Networks S.A. are being managed by the Joint Administrators, A R Bloom, S J Harris, A M Hudson, C JW Hill and S J Taylor who act as agents of Nortel Networks S.A. only and without personal liability.
Nortel Networks S.A. was placed into French liquidation judiciaire on 28 May 2009. The business and assets of the company that are situated inFrance are now under the control of la liquidateur judiciaire.
We advise that this report is provided pursuant to our appointments as Joint Administrators of the Company. It is provided solely for the purpose ofinforming creditors of certain aspects of the current status of the Administration. As this report is only an interim indication of the overall positionof the Company, and not a valuation of the current or future value of any particular item of debt, and is liable to change, it should not be reliedupon as an indication of the final return to creditors and, in particular, neither we nor the Company shall have any responsibility to any person whorelies on our report for the purpose of trading in debt of the Company.
The Joint Administrators may collect, use, transfer, store or otherwise process (collectively, “Process”) information that can be linked to specificindividuals (“Personal Data”). They may Process Personal Data in various jurisdictions in accordance with applicable law and professionalregulations including (without limitation) the Data Protection Act 1998.
Appendix 1
Appendix 1
Nortel Networks S.A. (In Administration and in Liquidation Judiciaire)
Company Information
Registered number: FR62389516741 / 389516741
Company name: Nortel Networks S.A.
Registered office address Centre d’Affaires Parc Lumiere, 46 Avenue des FreresLumiere, F-78190 Trappes, France
Previous names: Nortel Matra Cellular
Details of the Administrators and of their appointment
Administrators: A R Bloom, A M Hudson, S J Harris and C J W Hill ofErnst & Young LLP, 1 More London Place,London, SE1 2AF; and
S J Taylor of Insonomy Ltd, Leawood Hall, Mill Lane,Holloway, Matlock, Derbyshire, DE4 5AQ
Date of appointment: 14 January 2009
By whom appointed: The appointment was made by the High Court of Justice,Chancery Division, Companies Court on the application ofthe Company's directors.
Court reference: High Court of Justice, Chancery Division, CompaniesCourt - case 539 of 2009
Division of theAdministrators’responsibility:
Any of the functions to be performed or powersexercisable by the administrators may be carriedout/exercised by any one of them acting alone or by anyor all of them acting jointly.
Statement Concerning the EC Regulation on Insolvency Proceedings 2000
The EC Council Regulation on Insolvency Proceedings 2000 applies to this administration and theproceedings are main proceedings. This means that this administration is conducted according toEnglish insolvency legislation and is not governed by the insolvency law of any other EuropeanUnion Member State.
Jean Marie-LesurDarryl EdwardsMichel ClementJean-Luc Khayat
Directors (current and for the last three years) and company secretary (current)
Name
Directororsecretary
Dateappointed
Dateresigned
Currentshareholding
SharonRolston
Director 14/01/2009 - -
SimonFreemantle
Director 14/01/2009 - -
Appendix 1
Summary of Nortel Group Structure
Appendix 1
The EMEA Companies in English administration proceedings
Legal Entity Country of Incorporation
Nortel Networks UK Limited England
Nortel Networks S.A. France
Nortel Networks France S.A.S. France
Nortel Networks (Ireland) Limited Ireland
Nortel GmbH Germany
Nortel Networks Oy Finland
Nortel Networks Romania SRL Romania
Nortel Networks AB Sweden
Nortel Networks N.V. Belgium
Nortel Networks S.p.A. Italy
Nortel Networks B.V. Netherlands
Nortel Networks International Finance& Holding B.V.
Netherlands
Nortel Networks Polska Sp. z o.o. Poland
Nortel Networks (Austria) GmbH Austria
Nortel Networks s.r.o. Czech Republic
Nortel Networks Engineering ServiceKft
Hungary
Nortel Networks Portugal, S.A. Portugal
Nortel Networks Hispania, S.A. Spain
Nortel Networks Slovensko s.r.o. Slovakia
Appendix 2
Appendix 2
Nortel Networks S.A. (In Administration and in Liquidation Judiciaire)
Joint Administrators’ Abstract of Receipts and Payments from 14 January 2009 to13 July 2015
Nortel Networks S.A. (In Administration and in Liquidation Judiciaire )Administrators' receipts and payments account for the period: 14 January 2009 to 13 July 2015
Currency: USD Period 14 January 2009 to28 May 2009
Opening balance 3,160,118
Receipts
Trading:
- Post appointment sales 42,402,340 - Other receipts 162,505Other: - Pre appointment sales 52,243,000
- FX translation movement 549,387 - Bank interest 2,557 - Asset sales -
95,359,789Payments
Trading: - Payroll, employee benefits, and payroll taxes (27,317,197) - Accounts payable - inventory related (18,147,777) - Property costs (4,876,015)
- Intercompany (4,528,064) - Other taxes (3,714,687) - Pension contributions (3,303,123) - Other payments (2,047,145) - Trade payables (1,358,315)
- FX translation movement on FX transactions within the entity (139,457) - Utilities (18,301)Other: - Transfer to Liquidators accounts (9,934,495)
- Joint Administrators' fees and disbursements (1,374,017) - Legal fees (882,896) - Other professional services costs (124,946) - Restructuring costs (50,811)
- Bank charges and interest (12,745)
(77,829,991)
Closing balance 20,689,915
Period 28 May 2009to 13 January 2015
Period 14 January 2015to 13 July 2015
Total 28 May 2009 to13 July 2015
Receipts - Following secondary proceedings
Other: - Overpayment refunds 364,176 - 364,176 - US settlement allocation on claims 10,763,492 - 10,763,492
- Transfer from Liquidator's accounts 8,210,260 - 8,210,260 - FX translation movement 1,159,722 (6,587) 1,153,135 - Dividend received - Carrier AG 150,533 - 150,533 - FX translation movement on FX transactions within the entity 88,407 - 88,407
- Bank interest 50,023 1,756 51,779 - Pre appointment intercompany - Nortel Networks Israel 21,500 21,500 - Pre appointment Intercompany Asia Pacific - 1,156,133 1,156,133 - Intercompany 1,223,397 - 1,223,397
22,031,508 1,151,302 23,182,810Payments - Following secondary proceedings
Other: - Transfer to Liquidator's accounts (21,994,075) - (21,994,075) - Joint Administrators' fees and disbursements (12,564,939) (527,357) (13,092,296) - Legal fees (1,526,330) (455,645) (1,981,975)
- Bank charges and interest (663) (89) (752) - Other taxes - - -
(36,086,007) (983,091) (37,069,097)
Closing balance 6,635,416 6,803,627
Account reconciliations:
Administration accounts 6,635,415 6,803,627
6,635,415 6,803,627
Appendix 2
Nortel Networks S.A. (In Administration and in Liquidation Judiciaire)
Joint Administrators’ Abstract of Receipts and Payments from 14 January 2009 to13 July 2015
Nortel Networks S.A. (In Administration and in Liquidation Judiciaire )Administrators' receipts and payments account for the period: 14 January 2009 to 13 July 2015
Currency: EUR Period 14 January 2009 to28 May 2009
Opening balance 2,453,698
Receipts
Trading: - Post appointment sales 32,217,041 - Other receipts 123,544Other: - Pre appointment sales 39,758,490 - Bank interest 1,944 - Asset sales -
72,101,019Payments
Trading: - Payroll, employee benefits, and payroll taxes (20,767,848) - Accounts payable - inventory related (13,806,539) - Property costs (3,706,981) - Intercompany (3,118,759) - Other taxes (2,824,084) - Pension contributions (2,511,193) - Other payments (1,556,339) - Trade payables (1,032,696) - FX translation movement on FX transactions within the entity (108,758) - Utilities (13,913)Other: - Transfer to Liquidators accounts (7,557,840) - Joint Administrators' fees and disbursements (1,044,594) - Legal fees (671,220) - Other professional services costs (94,990) - FX translation movement (79,761) - Restructuring costs (38,629) - Bank charges and interest (9,690)
(58,943,834)
Closing balance - 28 May 2009 15,610,883
Period 28 May 2009to 13 January 2015
Period 14 January 2015to 13 July 2015
Total 28 May 2009 to13 July 2015
Receipts - Following secondary proceedings
Other: - Overpayment refunds 265,651 - 265,651 - US settlement allocation on claims 7,851,537 - 7,851,537 - Transfer from Liquidator's accounts 5,989,056 - 5,989,056 - Dividend received - Carrier AG 112,595 - 112,595 - FX translation movement 459,643 472,856 932,499 - Bank interest 34,920 1,511 36,431 - Pre appointment intercompany - Nortel Networks Israel 16,320 - 16,320
- Pre appointment Intercompany Asia Pacific - 992,480 992,480 - Intercompany 852,858 - 852,858
15,582,581 1,466,847 17,049,428Payments - Following secondary proceedings
Other:
- Transfer to Liquidators accounts (15,247,381) - (15,247,381) - Joint Administrators' fees and disbursements (9,183,752) (452,708) (9,636,461)
- Legal fees (1,143,867) (391,148) (1,535,015)
- Bank charges and interest (490) (76) (566) - Other taxes 5,151 - 5,151 - FX translation movement on FX transactions within the entity (163,225) - (163,225)
(25,733,564) (843,932) (26,577,497)
Closing balance 5,459,899 6,082,814
Account reconciliations:
Administration accounts 5,459,899 6,082,814
5,459,899 6,082,814
Appendix 2
Nortel Networks S.A. (In Administration and in Liquidation Judiciaire)Receipts and payments comments
Notes to R & P
Note 1
Account balances have all been reported in the local currency, Euro, in addition to a commoncurrency across all entities, USD.
Opening balances have been converted using January 2009 month end spot rates and closingbalances converted using June 2015 month end spot rates which have been provided by theCompany. This approach is in line with the Company’s internal reporting procedures.
Transactions that have taken place through the accounts over the course of the reporting period(14 January 2015 to 13 July 2015) have been converted at average spot rates over this period,which have been sourced from Reuters.
Consequently, foreign exchange movements have occurred in the period as a result of fluctuationsin currency conversion rates. These are translation movements only and do not reflect an actualreceipt or payment.
Note 2
The numbers used to prepare the receipts and payments summary have been provided by theCompany and are unaudited. Material items have been reviewed for accuracy and reasonableness.
Note 3
The amounts reported are inclusive of sales tax where applicable.
Note 4
As previously reported, on 28 May 2009, the Company entered into secondary proceedings.Consequently, control of the Company’s bank accounts, except the Royal Bank of Scotland (“RBS”)deposit accounts set up by the Joint Administrators, were passed to the French Officeholders.
Foreign exchange translation movement
The total FX translation movement to 13 July 2015 is a result of the fluctuations in exchange ratesagainst the USD. As such the interim FX translation movement does not represent a true monetarygain.
Appendix 3
Appendix 3
Nortel Networks S.A. (In Administration and in Liquidation Judiciaire)
The Joint Administrators’ fees comprise the following three elements:
Administration time costsAdministration time costs are those fees incurred by the Joint Administrators in respect of theoverall management of the Administration of the Company. They do not include core fees in relationto the sales of the businesses nor any reallocation of centrally incurred costs.
These time costs are categorised into various workstreams and detailed in a table in accordance withthe Statement of Insolvency Practice 9, an English regulatory requirement. These workstreamsinclude, amongst others, creditors, employees, property, pensions and statutory.
Reallocated time costsThroughout the Administration process, certain fees of the Joint Administrators have been chargedcentrally, for activities relating to all EMEA filed entities. Appropriate apportionment rates havebeen applied to these fees and the costs are apportioned accordingly between the various EMEAentities, including the Company. Please note, not all workstreams are apportioned to all EMEAentities.
Total reallocated time costs across all EMEA entities for the period were GB£1,712,191.69.
Transaction time costsThe Joint Administrators have incurred fees in respect of the global business and asset sales.Apportionment rates have been applied to these fees, based on a provisional purchase priceallocation (“PPA”) scenario, and the respective portions have been charged to each entity in EMEA,including the Company. In the fullness of time, there will be a true – up of transaction time costs inaccordance with actual PPA to each EMEA entity.
Total transaction time costs across all EMEA entities for the period were GB£1,350.00.
Total time costs for the Administration in respect of the period from 29 November 2014to 29 May 2015
£Administration time costs 68,057.20Reallocation of time costs 393,513.07Transaction time costs 649.35Total time costs 462,219.62
Time costs for the Administration for the period 29/11/2014 to 29/05/2015
Appendix 3
Nortel Networks S.A. (In Administration and in Liquidation Judiciaire)
Summary of Joint Administrators’ time costs in respect of the period from 29 November 2014 to 29 May 2015 (GBP)Excluding core M&A transaction time
Time costs for the Administration to date may show minor variances from one progress report to the next, owing to timing differences and adjustments beingmade to prior period time reports. This information should not be considered definitive and is provided to creditors only for guidance.
Average hourly rate 628.37 700.00 490.00 580.00 200.00 74.59Time costs for the period 36,571.00 3,500.00 12,740.00 812.00 7,400.00 7,034.20Time costs for the Administration to date 1,865,672.54 21,752.57 564,020.62 292,078.62 562,085.15 464,321.35
Hours
Appendix 3
Administration fee analysis (GBP)
Summary of total reallocated time costs for all EMEA filed entities in respect of the period from 29 November 2014 to 29 May 2015
Activity PartnerDirector /
Executive Director Assistant Director Manager
Executive /AssistantExecutive Analyst Total sum of hours
Average hourly rate (£) 715.39 612.64 574.48 373.83 266.22 178.40Total reallocated time costs for thePeriod (£) 388,244.50 276,669.00 186,075.50 276,558.00 340,605.89 244,038.80Total reallocated time costs to29 May 2015 (£) 5,666,416.63 7,589,686.30 15,701,372.44 13,072,724.07 12,825,937.63 6,590,646.24
Hours
Appendix 3
Administration fee analysis (GBP)
Summary of total core M&A transactions time costs for all EMEA filed entities in respect of the period from 29 November 2014 to29 May 2015
NoteTime costs in respect of transactions for the period from 29 November 2014 to 29 May 2015 have been apportioned on a provisional basis, having regard to the nature of the work done and theextent of progress made in respect of some, but not all, core M&A transactions. The allocation is provisional and will change as the transactions progress and the outcome of the PPA is clear.
Please note the Joint Administrators have only apportioned core M&A transaction time costs in respect of those transactions that have made sufficient progress. Therefore further core M&Atransaction time costs will be apportioned in due course to the Company, and reapportioned as the outcome of the PPA process becomes clear.
Average hourly rate (£) - 675.00 - - - -Total transaction time costs for thePeriod (£) - 1,350.00 - - - -Total transaction time costs to29 May 2015 (£) 2,559,860.00 7,174,653.50 7,962,916.00 5,874,389.89 3,639,797.50 563,395.50
Hours
Appendix 4
Appendix 4
Nortel Networks S.A. (In Administration and in Liquidation Judiciaire)
Office Holders’ Charging Policy for Fees
The statutory provisions relating to remuneration are set out in Rule 2.106 of the Rules. Furtherinformation is given in the Association of Business Recovery Professionals’ publication “A Creditors’Guide to Administrators’ Fees”, a copy of which may be accessed from the web site of the InsolvencyPractitioners Association at http://www.insolvency-practitioners.org.uk (follow ‘Regulation andGuidance’ then ‘Creditors’ Guides to Fees’), or is available in hard copy upon written request to theAdministrators.
The creditors have determined that the Administrators’ remuneration should be fixed on the basis oftime properly spent by the Administrators and their staff in attending to matters arising in theAdministration.
The Administrators have engaged managers and other staff to work on the cases. The workrequired is delegated to the most appropriate level of staff taking account of the nature of the workand the individual’s experience. Additional assistance is provided by accounting and treasuryexecutives dealing with the Company’s bank accounts and statutory compliance diaries, secretariesproviding typing and other support services and filing clerks. Work carried out by all staff is subjectto the overall supervision of the Administrators.
All time spent by staff working directly on case-related matters is charged to a separate time codeestablished for each case. Each member of staff has a specific hourly rate, which is subject tochange over time. The average hourly rate for each category of staff over the period is shown inAppendix 3, as are the current hourly rates used. The current hourly rates may be higher than theaverage rates, if hourly rates have increased over the period covered by this report.
Office Holders’ Charging Policy for Disbursements
Statement of Insolvency Practice No. 9 (“SIP 9”) published by R3 (The Association of BusinessRecovery Professionals) divides disbursements into two categories.
Category 1 disbursements comprise payments made by the office holders’ firm, which comprisespecific expenditure relating to the administration of the insolvent’s affairs and referable to paymentto an independent third party. These disbursements can be paid from the insolvent’s assets withoutapproval from the Committee. In line with SIP 9, it is our policy to disclose such disbursementsdrawn but not to seek approval for their payment.
Category 2 disbursements comprise payments made by the office holders’ firm which includeelements of shared or overhead costs. Such disbursements are subject to approval from Creditors’Committee as if they were remuneration. It is our policy, in line with SIP 9, to seek approval for thiscategory of disbursement before they are drawn.
Rule 2.47 Form 2.24B
The Insolvency Act 1986
Administrator’s progress report 2.24BName of Company Company numberNortel Networks S.A. FR62389516741 / 389516741
In the Court case numberHigh Court of Justice of England and Wales, ChanceryDivision, Companies Court
539 of 2009
We A R Bloom, A M Hudson, S J Harris and C J W Hill
of Ernst & Young LLP, 1 More London Place, London, SE1 2AF
and S J Taylor of Insonomy Ltd, Leawood Hall, Mill Lane, Holloway, Matlock, Derbyshire, DE4 5AQ
administrators of the above company attach a progress report for the period
From to
14 January 2015 13 July 2015
Signed
Joint Administrator
Dated 11 August 2015
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