Nortel May Pay Executive Bonuses During Bankruptcy

Nortel May Pay Executive Bonuses During Bankruptcy

By Steven Church and Joe Schneider

Nortel Networks Corp., once the largest telephone-equipment maker in North America, won U.S. and Canadian approvals to pay eight executives bonuses of as much as $7.3 million as the company tries to reorganize in bankruptcy.

The potential bonuses are part of a larger plan to pay 92 managers more than $23 million, including the eight members of Nortel’s senior leadership team. Another 880 employees may be paid as much as $22 million under a plan to ensure key workers don’t leave.

Paying the managers more than the workers is necessary “because of the high level of expertise for these individuals,” company attorney James Bromley said. “We believe it is appropriate for the circumstances.”

Toronto-based Nortel filed for bankruptcy in January in the U.S. and Canada after losing almost $7 billion since 2005. The company has said it will fire at least 5,000 workers this year as part of a plan to reorganize as a smaller business.

U.S. Bankruptcy Judge Kevin Gross approved the plan today following a hearing in Wilmington, while Ontario Superior Court Judge Geoffrey Morawetz granted the same approval in Toronto over objections from about 67 Nortel workers who were fired and didn’t get severance pay.

‘Enormously Complicated’

“The board cannot properly function without the advice of its senior, experienced, leadership team,” Lyndon Barnes, a lawyer for the Nortel board, told the judge in Toronto. “This is an enormously complicated task.”

Bromley said the $7.3 million is an estimate for how much the eight senior executives could make if the company achieves certain goals, including court approval for a plan of reorganization. About $5 million would be shared by five executives in the U.S. and the rest would go to three executives in Canada, Bromley said.

On March 6, the $22 million in retention payments for workers was approved, along with part of the proposal to pay managers a bonus. Full approval of the management plan was delayed in part because U.S. creditors sought financial projections for 2009 from the company before agreeing to the executive bonuses.

Those projections have been delivered to the creditors, said Nortel’s Canadian lawyer Derrick Tay.

In its Chapter 11 petition in Delaware, U.S. operating unit Nortel Networks Inc. said it had assets of $11.6 billion and debt of $11.8 billion as of Sept. 30.