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Bondholders are fighting against retirees and former employees of Nortel Networks Corporation (PINK:NRTLQ), once the largest telecommunication equipment company in North America, over some $9 billion in cash. The squabble, which came after the telecommunications company sold off most of its assets, could be one of the world’s most complex transnational legal proceedings in history, commented Ontario Chief Justice Warren Winkler, who was appointed mediator by both U.S. and Canada courts having jurisdiction over Nortel’s bankruptcy and insolvency proceedings.

Nortel Networks Corporation (PINK:NRTLQ) sought protection under Chapter 11 of the U.S. Bankruptcy Code and the Companies’ Creditors Arrangement Act (CCAA) in January of 2009. Nortel is one of the largest failures in the telecommunications equipment industry, despite its successful creation of optic equipment that carried most of the Internet’s data during the 1990s. When the company filed for bankruptcy, analysts had already forewarned that the company, which was saddled with too much debt, would never survive and would end in liquidation. Aside from financial problems, Nortel also faced an accounting scandal that led to the charges against three of the company’s former executives for defrauding the company of $12.8 million in bonus payments. This is a story very similar to Enron’s, only this one is on the other side of the pond. When Nortel filed for bankruptcy, it was worth more than $300 billion, according to court papers filed at that time.

The analysts forewarning became prophetic when Nortel sold off most of its assets, including a $4.5 billion patent portfolio and its operating units, generating $9 billion. As to how the $9 billion is to be divided among creditors, which include bondholders, suppliers, governments and former employees around the world and holding $20 billion in claims, is the issue of ongoing mediation.

The $9 billion amount is big, when considered alongside the fact that Nortel Networks Corporation (PINK:NRTLQ) liquidated. And, in most liquidation proceedings, creditors are left with lesser recoveries than creditors in companies under reorganization proceedings. That is why Nortel Networks Corporation (PINK:NRTLQ) creditors are scrambling over how the pile of cash is to be distributed. Among the issues argued upon by creditors is an additional $1 billion of interest that has accrued on bonds issued by Nortel. Bondholders believe they are entitled to the interest, while retirees and former employees are also clamoring for the same additional interest, emphasizing fairness and equal distribution of Nortel’s cash among all claimants. The receiver of Nortel’s British unit has also argued that retirees in Britain’s unit have been left out partially because their pensions have been underfunded for as much as $3 billion.

Centerbridge Partners and George Soros’ Quantum Partners, two of the bondholders holding $4 billion, can block the proceedings because of their stake in the former telecommunications company. Outside investors also remain hopeful that creditors will recover a substantial percentage of their claims. This positive outlook on creditor recovery is reflected in the active claims trading activity in Nortel’s liquidation proceeding. From November 2011 to November last year, based on data compiled by SecondMarket, Nortel Networks Corporation (PINK:NRTLQ) recorded 242 claims that were traded, valued at more than $82 million. When Nortel was active in business, it accounted for about a third of all equity traded on the Toronto Stock Exchange. In 2000, the company’s shares were trading for as high as $124.50. In Jan. 2009, company shares were down at a dismal 12 Canadian cents.