Friday, May 25, 2012

In re Nortel Networks: An Update

Updated from previous post.

On April 20, 2012, the Nortel Networks UK Pension Trust Limited (the “Trustee”), as Trustee of Nortel Networks UK Pension Plan, and the Board of the Pension Protection Fund (the “Board,” together with the Trustee, the “Petitioners”) petitioned the United States Supreme Court to review the Third Circuit’s ruling in In re Nortel Networks Inc., 669 F.3d 128 (3d Cir. 2011), that the “police power” exception to the automatic stay as set forth in Section 362(b)(4) of Bankruptcy Code did not apply to the situation at hand.  The Third Circuit’s opinion can be found here.

The petitioners describe the question presented as “whether the police power exception . . . should be applied more narrowly to regulatory actions commenced by a foreign governmental unit involving public welfare than to those commenced by a domestic governmental unit relating to public health and safety.”

The petitioners contend that the Third Circuit decided to construe the “police power” exception of the Bankruptcy Code narrowly in this situation because the case involved a foreign governmental unit.  More specifically, the Petitioners submit that the nationality of the governmental unit seeking the protection of the “police power” exception to the automatic stay should have no bearing on the application of the “police power” exception.  The Petitioners also contend that such a narrow construction is at odds with the principles of comity. 

The petitioners also point out the practical effects of the Third Circuit’s holding.  Specifically, the petitioners note that this holding will encourage foreign creditors to stop filing proofs of claim in United States bankruptcy courts, and instead enforce their claims against any assets of the United States debtor that are located outside of the United States.   The Petitioners also note that this holding will potentially lead to foreign insolvency courts not according due deference to the United States bankruptcy courts. 

Responses to the petition for writ of certiorari were due on May 24, 2012.  Both the respondents Nortel Networks Inc., et al., and the Official Committee of Unsecured Creditors have filed a waiver of their right to respond to the petition. 

Given the issues involved, it will be interesting to see whether the Supreme Court grants the petition.  As the petitioners point out, these issues are particularly relevant in light of the increase in cross-border bankruptcy cases.  Stay tuned!

Eckert Seamans Cherin & Mellott LLC

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