Canadian vendor’s 17 remaining employees will be reduced to five by year-end, according to court papers.
Nortel Networks Corp. has moved to cut off health-care benefits for 4,500 retired U.S. employees and dependents by the end of the year, a move the company says is necessary as it moves toward the end of its corporate life.
The former telecommunications equipment maker filed for bankruptcy protection more than three years ago and is sitting on more than $9 billion in cash raised in the liquidation of its businesses. Only 17 employees remain on Nortel’s payroll, a number that will go down to five by the end of the year, court papers say.
Benefits for U.S. retirees and their dependents cost about $1.3 million per month, Nortel’s attorneys said in papers filed with the U.S. Bankruptcy Court in Wilmington, Del. Nortel wants the spending stopped and was unable to reach a deal with the official committee set up to negotiate on behalf of retirees.
Togut, Segal & Segal LLP’s Albert Togut, attorney for the retiree panel, could not immediately be reached for comment Tuesday on Nortel’s bid to end the benefits.
The official committee of unsecured creditors in Nortel’s U.S. bankruptcy case, which consists of two bond trustees and a quasi-governmental corporation that operates as a safety net for corporate pension plans, is “working closely with” Nortel on the retiree benefit matter, said Akin Gump Strauss Hauer & Feld’s Fred Hodara, attorney for the creditor panel.
This is the second time Nortel moved to shake off retiree benefits in bankruptcy. The first effort was stymied by a federal appeals court ruling in another bankruptcy case that said troubled companies must negotiate with retirees before cutting off their medical benefits.
Nortel says it has complied with all legal requirements this time and is entitled to shut off health-care benefits for retired former workers.
Separately, Nortel moved to terminate 215 disabled U.S. employees who have been kept on the payroll and provided with benefits. Unlike most companies, which purchase insurance products to take care of disabled workers, Nortel simply continued to pay them.
Now that the company is dissolving, Nortel says it must terminate their employment and benefits, leaving the disabled workers to fend for themselves. Legal protections that shield retiree benefits, according to Nortel, don’t protect the long-term disabled.
Under the retiree-benefit termination proposal, Nortel is asking to cut off retirees’ rights to press claims in the Chapter 11 case for damages they allege they will incur from the loss of medical care and other benefits, court papers say.
The company is offering to put up about $32 million to get out from under its retiree benefit obligations, court papers say. The retiree committee is asserting claims of a “significant size,” according to Nortel, and if the company isn’t able to cap that exposure, it won’t have “clarity” on what will be available to other creditors.
Nortel took action against the disabled and retired workers as a clash continues over how to divide up the cash raised in the bankruptcy liquidation.
Investors that bought Nortel’s debt at a steep discount after the company collapsed have been complaining it’s taking too long to sort out disputes over the money. Nortel’s Canadian and U.S. arms, which are strongholds of the financial investors, have been grappling over the cash with Nortel’s U.K.-led European units, where pensioners dominate the creditor body.