Global Tax Insights
Courts Reach Decision Regarding Nortel’s Bankruptcy AllocationJune 15, 2015
Courts agree on a modified pro rata allocation for proceeds acquired from Nortel’s bankruptcy sales.
Courts in the U.S. and Canada have decided on a modified pro rata method of allocation to divide the proceeds acquired by Nortel Networks, Inc. in the bankruptcy sales of their multiple lines of business and intellectual property assets. Subsidiaries in different countries, bondholders, and pension claimants were among the parties involved in the question of how $7.3 billion in combined proceeds from sales of IP assets and lines of business should be divided.
Modified Pro Rata Allocation
Under the modified pro rata allocation method, the amount each regional business received to pay creditors is calculated based on the amount of claims against it as a percentage of the worldwide claims.
Parties involved have thrown arguments against pro rata allocation, saying mainly that the method cannot be managed due to uncertain treatment of claims, timing, and creditor recoveries. Considering this, along with the large amount of money in question, the decision is expected to be appealed. For more information, read our article, “Courts Reject Nortel Bankruptcy Allocation”.