Update on Court Activity – April 11, 2011

The Pension Update Letter sent to all members in October 2010 included the following statement:

“The Trustee/PPF submitted claims for the Deficit against a number of Nortel companies in the US, Canada and Europe. These claims relate to the Pensions Regulator (tPR) exercising its powers under the Pensions Act 2004 for the possible issue by tPR of a Financial Support Direction (FSD) under which certain Nortel companies (other than NNUK) would be responsible for putting in place financial support for the Plan. It should be noted that tPR acts entirely independently of the Trustee/PPF in respect of this activity.

In January 2010 tPR issued a Warning Notice to a number of Nortel companies which, as the name suggests, warned the companies of its intention to refer the matter to the Determinations Panel (DP) of tPR. The DP met in June 2010 and decided that it was reasonable for an FSD to be issued in respect of a number of Nortel companies in US, Canada and Europe. The relevant Nortel companies chose not to make any submissions to the DP, although representatives for some European Nortel companies attended the hearing before the DP as observers. The DP’s decision has been appealed to the Upper Tribunal by some of the relevant Nortel companies and we currently await further developments on this front.”

The appeal to the Upper Tribunal by the European Nortel (EMEA) companies mentioned above may not be heard for some months yet. However, the Upper Tribunal has in the meantime directed the DP to issue separate FSDs against the relevant Nortel US and Canadian (North American) companies, who had not appealed the original Determination.

The DP has now issued FSDs against the following North American Nortel companies:

Nortel Networks Limited

Nortel Networks Corporation

Nortel Networks Incorporated

Nortel Networks (CALA) Incorporated

The FSDs require each company, as soon as is practicable, to provide tPR with proposals detailing the financial support they will provide to the Plan. We are advised that the actual issue of FSDs in North America means our claims are no longer treated as being contingent.

We mentioned in our October 2010 letter that both the Canadian and US courts had ruled that actions taken by the Trustee/tPR in support of Plan claims were in breach of insolvency procedures in those jurisdictions.

In Canada, tPR’s appeal against that decision was rejected and we can now report that tPR has been refused leave to appeal that judgment to the Canadian Supreme Court. However, as we also said in our October 2010 letter, this does not prevent the Trustee/PPF seeking to assert its own claims as part of the Canadian insolvency procedure. Accordingly, we can report that the Statement of our Case in Canada has now been updated and very considerably expanded. The Canadian Debtors have not yet responded to that Statement of Case and we await further developments.

In the US, the District Court has now upheld the previous ruling that the FSD process was in breach of the automatic stay which is applied in insolvency procedures there. We have been advised that this ruling should be appealed to the 3^rd Circuit which is the next level of appeal. The appeal has accordingly been filed together with an application to expedite its hearing.

Finally, we reported in December 2010 that the UK Companies Court had ruled that FSD claims against EMEA (European) Nortel companies should be treated as an ‘expense of the administration’, thus having priority over all unsecured creditors. As expected, this decision has now been appealed by the Nortel administrators and we expect this appeal will be heard in July 2011.

We will continue to keep members updated as and when there are any further developments.