Nortel pensioners deal rejected by court

A $57 million benefits deal between Nortel Networks Corp. and its pensioners and disabled employees has been thrown out by an Ontario judge.

The deal reached in February to provide health and long-term disability benefits toformer and disabled employeesuntil the end of 2010 is "flawed" and unfair to other Nortel creditors, saidjudge Geoffrey Morawetz of the Ontario Superior Court of Justice in a decision released Friday.

The deal included a controversial clause that would allow former employees to take advantage of any future changes to federal bankruptcy laws to increase their benefits. It was supported by groups representing about 19,500 former employees and 300 employees on long-term disability.

Both the New Democrats and Liberals have tabled bills to amend the federal Bankruptcy and Insolvency Actso as tobetter protect employees and pensioners when a company fails. The Conservative government has not yet said whether it would support those bills.

Other Nortel creditors such as bondholdershad opposed the settlement, saying the special clause means the agreement isn't final and therefore creates uncertainty.

Morawetz said he thought that position was "well founded" as the clause means there is "potential for a fundamental alteration of the settlement agreement."

He added: "If creditors are to be bound by the settlement agreement, they are entitled to know, with certainty and finality, the effect of the settlement agreement."

The court could not approve the deal without the clause, Morawetz said, as that would alter it so much as to essentially create a brand new agreement.

Benefitsnowend March 31

Bernard Neuschwander said the failure of the deal to win court approval means that on March 31, the pension plan will be wound up and all employees will lose their health benefits.

"It is very disappointing for us, that's for sure," he said.

If the deal had gone through, health coverage would have continued for another nine months.

Given that therejection of the dealcomes just days before March 31, the court will "make every effort" to help the parties involved if they need further direction, Morawetz wrote.

Nortel, a telecommunicationstechnology company, filed for bankruptcy protection in January 2009 and since then, most of the company has been sold off as it prepares to wind down operations.

The companyannounced it on Feb. 8, 2010 that it had reached a deal with its pensioners and its employees on disability leave, who feared they would lose their benefits when the company is finally dissolved.

Disabled employees pleased

A group of about 37 Nortel employees on long-term disability opposed the deal, as it requiredemployees and former employeesto give up their right to sue Nortel and oppose the payment of $92 million in bonuses to Nortel executives.

However, Morawetzwrote inFriday's decision that he is satisfied that the clause barring the employees from suing is not too broad and is necessary. He added that it will benefit creditors by preventing delays and extra costs related topotential lawsuits.

Nevertheless, the employees opposed to the deal are pleased with the decision, said Diane Urquhart, an independent financial analyst who advocates for them.

"The longterm disabled persons see this as a opportunity now to negotiate a more equitable settlement for their very, very significant negative situation," she said.