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Brexit uncertainty means that Nortel administration extension should only be for a year, says High Court

Out-Law Legal Update | 11 Jan 2018 | 9:54 am | 2 min. read

LEGAL UPDATE: The High Court has granted an administrators' application to extend the administration of the Nortel companies for 12 months only, because of uncertainty surrounding Brexit. The Nortel case may prove to be the beginning of a wave of shortened administration extension applications ahead of March 2019 where the administrators need to rely upon the recast regulations for recognition within the EU. In making extension applications in administrations, administrators will have to be comfortable that the purposes of that administration are still capable of achievement if there is no certainty if or how the administrators will be recognised across the EU.

The High Court has recently considered the uncertainty of the UK's relationship with the EU after Brexit in relation to an administration extension application.

The court, agreeing with the administrators' application, said that until there was more certainty in relation to the UK's relationship with the EU after Brexit the extension of the administration of Nortel Networks UK Ltd and other Nortel companies for more than 12 months was not appropriate.

The Nortel group manufactured telecommunications equipment and provided networking solutions around the world. In January 2009, several of the companies in the Nortel group entered insolvency proceedings in different jurisdictions. Nortel Networks UK Limited and 17 other companies entered administration in the UK. Previously, the administrations had been extended four times, the most recent being for 24 months until 13 January 2018.

Of the 17 companies that entered administration, 16 of those were incorporated in an EU country other than the UK and each had at least one establishment in its incorporating country. As a result, creditors could technically bring secondary proceedings against such a company in its "home" country. The administrators considered that it would be in the best interests of creditors to avoid secondary proceedings which would increase costs, multiply formalities and cause delay.

In order to discourage secondary proceedings, the administrators gave various assurances in their proposals that if creditors did not seek to open secondary proceedings, the administrators would ensure that the creditors would be in no worse position than if secondary proceedings had been opened.

At the time of the administrators' application 13 companies had entered company voluntary arrangements (CVAs), three companies were in the process of making distributions to unsecured creditors and the administrators were anticipating proposing a CVA in respect of the final company.

In order for distributions to be made to creditors either under the CVAs or in the administrations, the administrators applied to court to extend the administrations.

The administrators sought to extend the administration by one year because of uncertainty around Brexit. The uncertainty arises because the administrations and CVAs of the companies are main proceedings for the purpose of the Regulation (EU) on Insolvency Proceedings 2015 (No 2015/848) (the recast regulations). After the UK leaves the EU it is currently unclear whether or how the recast regulations will apply to the administrations of the Nortel companies or the CVAs.

As a result the administrators were uncertain what recognition, if any, would be given to them as administrators or CVA supervisors on and after 29 March 2019.

In light of the uncertainty, Mr Justice Snowden agreed that it was not prudent to extend the administration of the Nortel companies beyond 29 March 2019. He noted the administrators' intention to seek further directions in late 2018 in respect of any of the administrations of any Nortel companies which were likely to continue beyond a one year extension.

The judgment of Mr Justice Snowden is the first published decision where Brexit uncertainty has caused administrators to apply for a shorter extension to their term as administrators than they otherwise would have.

Matt Ford is a restructuring expert at Pinsent Masons, the law firm behind Out-Law.com