In Re: Nortel Network, No. 11-1895 (3d Cir. 2011)Annotate this Case
Nortel employed about 24,000 people worldwide when it filed Chapter 11 petitions. Its affiliates entered insolvency proceedings in Canada and the U.K. The Bankruptcy Court recognized the foreign proceedings as triggering the automatic stay of 11 U.S.C. 362(a). Nortel entities from several countries entered into an Interim Funding and Settlement Agreement, approved by the Bankruptcy Court, providing for cooperation in sales of business units and that proceeds of any sale will be held in escrow. Claims filed in the U.S. asserted that U.S. debtors might be required to provide financial support for U.K. pension obligations under the U.K. Pensions Act 2004. The claims were contingent and unliquidated, based on the outcome of the U.K. proceedings. U.S. debtors sought to enforce the stay, to prevent participation in U.K. proceedings concerning their liability. The court granted the motion, holding that the police power exception to the automatic stay did not apply because neither the Trustee nor the U.K. agency is a governmental unit under 11 U.S.C. 101(27) and that U.K. proceedings do not pass the public policy or pecuniary purpose tests because the focus is a benefit for a private party, the Trustee. Canadian courts reached the same conclusion. The district court affirmed the stay. In U.K. proceedings, the debtors were ordered to secure financial support for the plan. The Third Circuit affirmed the stay.