On January 14, 2009, Nortel Networks Inc. filed for bankruptcy in United States Bankruptcy Court for the District of Delaware. On the same day that Nortel filed in Delaware, its parent, Nortel Networks Corporation, along with various Canadian affiliates, filed an application with the Ontario Superior Court of Justice seeking relief from creditors. As stated in Nortel’s affidavit in support of its bankruptcy motions, Nortel traces its origins back to the Bell Telephone Company of Canada. In 2000, during the height of the telecommunications bubble, Nortel had 93,000 employees and annual revenue of $250 billion.
Since the telecommunications bust, Nortel implemented several restructurings, reducing its payroll from 93,000 employees to 30,000 employees in 2008. To reduce itself to one third of its original size, Nortel began outsourcing its manufacturing, spinning off "non-core" business and consolidating various departments, including research and development. Despite its restructuring efforts, Nortel has been unable to keep costs below revenue for the last couple of years, which in turn led to its filing for bankruptcy.
The Common Carriers and Warehouse Motion
On its petition date, Nortel filed several "first day" bankruptcy motions, including a motion to pay prepetition common carrier and warehouse fees. The Bankruptcy Court approved the motion the next day. Pursuant to the Court’s order granting the motion, Nortel is authorized in its discretion to pay prepetition common carrier and warehouse fees in the ordinary course of business. The Court authorized Nortel to pay up to $3.5 million in common carrier charges and $5 million in warehouse fees.
Approximately two weeks after filing its motion to pay carrier and warehouse fees, Nortel filed a motion to supplement first day orders. In its motion to supplement, Nortel stated that it received $6 million in additional common carrier charges which were not considered in the original motion. Nortel now seeks to expand the relief granted in the motion to pay carriers, as well as expand or amend the relief sought in other first day motions. Assuming the Court grants the motion to supplement, it will do so under section 105(a) of the Bankruptcy Code. Section 105(a) provides, in pertinent part: "[t]he court may issue any order, process or judgment that is necessary or appropriate to carry out the provisions of [the Bankruptcy Code]."
You learn a lot about a debtor by looking at its largest creditors. Acording to Nortel’s petition for bankruptcy, its ten largest unsecured trade creditors include:
- Export Development Canada … $187 million
- Flextronics … $22 million
- Flextronics America … $19 million
- Flextronics Int’l … $4.9 million
- Seal Consulting … $4.6 million
- Computer Science Corp. … $4.0 million
- Jabil Circuit Inc. … $3.8 million
- Beeline … $3.5 million
- Infosys … $2.9 million
- JDS Uniphase Corp. … $2.9 million
Rising costs and steeper competition were not the only factors leading to Nortel’s bankruptcy. The lack of financing also played a signficant role. Now that it has filed for bankruptcy, it will be important to see whether Nortel is able to sell off assets to generate much needed cash. Nortel’s bankruptcy proceeding is before the Honorable Kevin Gross.