Nortel pensioners deal rejected by court

Posted by John Malloy on 03/28/2010

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A sad turn of events for the good people that helped build Nortel, to say the least – John

What was in rejected deal

Under the agreement, Nortel said it would:

Continue current-service funding of pension plans until the end of September 2010.
Pay a lump sum of $3,000 to eligible employees laid off without severance before June 30, 2010, as an advance of their claims under bankruptcy law.
Pay long-term disability benefits, survivor income benefits and survivor transition benefits through Dec. 31, 2010.
Pay medical and dental benefits to Nortel pensioners and survivors and employees on long-term disability until the end of 2010.
Life insurance benefits would continue unchanged until the end of 2010.

A $57 million benefits deal between Nortel Networks Corp. and its pensioners and disabled employees has been thrown out by an Ontario judge.

The deal reached in February to provide health and long-term disability benefits to former and disabled employees until the end of 2010 is “flawed” and unfair to other Nortel creditors, said judge Geoffrey Morawetz of the Ontario Superior Court of Justice in a decision released Friday.

The deal included a controversial clause that would allow former employees to take advantage of any future changes to federal bankruptcy laws to increase their benefits. It was supported by groups representing about 19,500 former employees and 300 employees on long-term disability.

Both the New Democrats and Liberals have tabled bills to amend the federal Bankruptcy and Insolvency Act so as to better protect employees and pensioners when a company fails. The Conservative government has not yet said whether it would support those bills.

Other Nortel creditors such as bondholders had opposed the settlement, saying the special clause means the agreement isn’t final and therefore creates uncertainty.

Morawetz said he thought that position was “well founded” as the clause means there is “potential for a fundamental alteration of the settlement agreement.”

He added: “If creditors are to be bound by the settlement agreement, they are entitled to know, with certainty and finality, the effect of the settlement agreement.”

The court could not approve the deal without the clause, Morawetz said, as that would alter it so much as to essentially create a brand new agreement.

Benefits now end March 31

Bernard Neuschwander said the failure of the deal to win court approval means that on March 31, the pension plan will be wound up and all employees will lose their health benefits.

“It is very disappointing for us, that’s for sure,” he said.

If the deal had gone through, health coverage would have continued for another nine months.

Given that the rejection of the deal comes just days before March 31, the court will “make every effort” to help the parties involved if they need further direction, Morawetz wrote.

Nortel, a telecommunications technology company, filed for bankruptcy protection in January 2009 and since then, most of the company has been sold off as it prepares to wind down operations.

The company announced it on Feb. 8, 2010 that it had reached a deal with its pensioners and its employees on disability leave, who feared they would lose their benefits when the company is finally dissolved.