Two Approaches to Bankruptcy Protection

By Mark Evans | Published: March 16, 2009

The Financial Post has an interesting article looking at how two companies – Nortel and Smurfit-Stone – are taking different approaches to bankruptcy protection.

While Nortel has decided not to make severance payments to employees it has eliminated, the FP reports that Smurfit-Stone has paid out millions of dollars in severance.

For Nortel, the issue of severance looks like it’s going to be a legal and morale bee’s nest judging by the number of lawsuits emerging.

In particular, Nortel is going to have to deal with the sticky problem that it laid off a lot of people in the months before the bankruptcy protection, who were expecting severance payments as part of the process. When Nortel filed for bankruptcy protection on Jan. 14, all deals – severance and benefits – were off the table.

For some employees, what’s particularly troubling was Nortel’s refusal pre-filing to make lump-sum severance payments. Instead, they were forced to wait 60 days for the cash on the premise that the company could find another spot within the organization for them – something that wasn’t going to happen.

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  • joremero

    I didn't see how many people Smutfit-Stone laid off, but I am taking a wild guess saying that NT laid off and will lay off many many more employees than SS, which makes a big difference.
    Though it is harsh for let-go employees, NT would have run out of cash if they paid the severance of the thousands of laid off employees…..

  • TongueInCheek

    It really is unfortunate what is happening to displaced Nortel employees. I wondered if the $23 Million in KEIP funds could be used to provide some level of severance for the 5,000 impacted people.

    Originally I thought that the 60 Day Paid Notice period could be maintained but the cost is substantial. If the average loaded cost per employee is $100,000 then the 60 Day cost per employee becomes $16,666 which drives a cost of $83.33 Million for 5,000 people.

    There's not an easy answer.

  • joremero

    yea, 83 Million for 60-day, imagine the cost of, say, 5 month severance on top of that…. and I think 5k is only to begin with…

  • protosphere

    The severance costs are not crippling relative to what they owe their big business creditors they need for restructuring bonuses but does effect their costs reduction bonuses.

    The board is also trading options for cash again. legally this time as they increase lawsuit insurance premiums. Hey, they can use all the cash they can get from the disposable peons.

    Where there is Zincentive there is Zway to do anything they want… until “more colorful” finances show zero to “extinguish like a plant” “in the not too distant future” “for cause” “lacking miracles” in their insurmountable “tall mountains” and “rocky roads” for this “great company” =)

  • protosphere

    Good excerpts from the article say it all:

    “The reason is obvious: While one firm hopes to maintain some of its core operations so it's careful not to destroy the morale of its workforce, the other is not afraid of burning those bridges.

    Smurfit-Stone with 3.5B debt found a way to pay severances

    trading notes for equity won't solve the business issues.(with Nortel)

    If having a viable company was the ultimate goal of Nortel, then it would probably try and use some of its liquidity to appease outgoing employees-if only to maintain current employee morale.

    By striking the path it has, management is signaling that it's not committed to maintaining a large global firm. Breakup is imminent.”

  • notwellnetworks

    I am one of the impacted Nortel employees and not only has severance been taken away, but the 60 day regular payroll amount we were entitled to (60 days after termiantion) was made void effective immediately upon filing. We never got the 60 days even, let alone the lump sum severance payout.

  • SleeplessinToronto

    Let's put this in perspective. There's no question there is enough money to pay the severances which were promised. It's just that Nortel made a cold and conscious decision to favor the big boys instead. So we get screwed and the large creditors will end up with 1/2 cent per dollar or so more than they otherwise would have once the remainders are paid out. And, by the way, every severed Canadian employee whose payments were stopped went directly to the EI office for unemployment benefits. Looked at that way, Nortel took the amounts owed to us, gave them to the big creditors, and stuck the government with the bill. I would not think that would be too popular in Ottawa if they were paying attention.

  • whatnext4nt

    Clearly, the Feds are not paying attention to the Nortel crisis and the impact it will have on Canada’s high tech capability and future economy. Apparently Harper's government, and for that matter, even the opposition parties, do not care about this crisis , despite the fact that Nortel is Ottawa's largest private sector employer and largest spender on R&D in Canada.

  • sca41335

    Exactly…by pursuing this approach Nortel has shown how much they really “care” about their Employees. Paying everyone the full severance packages would obviously not have been possible, but their attitude speakings volumes. I wonder what was going through their thoughts ..did they expect everyone just to go about their daily duties and not be concerned that they would lose their job and depart with nothing.

  • SleeplessinToronto

    Just got off the Juroviesky call. They make a convincing case that they may be able to get severed employees more of our money back than just an amount equal to the big creditors, as the other fimrs have been saying. I signed up on their site, and encourage others to as well. No cost or other obligation to you–you just need to register your support. The more who register, the more likely they will be able to get the judge's attention on this. Even if you signed up with another firm, there is nothing preventing you from registering with these guys as well: http://www.jruslaw.com. Then click on class actions, then on Nortel CCAA. HELP ME GET MY MONEY BACK!

  • exnt_x_2

    Crisis? What crisis? Dear God. With the tens of millions of people globally losing their jobs, losing their homes, their savings, anything of the future they had hoped for, and Nortel is a crisis?

    Dude, you need to get out of your pond and take a good look around.

  • exnt_x_2

    And your point is …?

  • scalpcutter

    what about current peons?

  • scalpcutter

    Don't worry McGuinty, Manley and Harper are on it.

  • whatnext4nt

    Yes it is a crisis.

    I am well aware of what is occurring globally in job losses and I agree it is very disturbing indeed. But many people at Nortel are loosing their homes, jobs, much of their life savings, and much of their hopes for their future. There are also major economic impacts to current and future pensioners as well, 16,000 current in Canada alone.

    How does the fact that there are millions globally in a similar situation make their situation not a crisis? Also, this crisis at Nortel goes beyond personal damages and represents a significant threat to the economic future of Canada. Nortel is the largest telecom supplier in North America. Nortel is the largest spender of R&D by far in Canada. Nortel is the largest single private sector employer in Ottawa. Nortel also has a major economic impact in many other regions outside of Canada.

    This is the Avro CF-105 Arrow of Canadian telecommunications industry. This is a crisis.

  • exnt_x_2

    “But many people at Nortel are loosing their homes, jobs, much of their life savings, and much of their hopes for their future.”

    Well get in line with the rest of us. And no pushing to the front. Take your turn.

    “… this crisis at Nortel … represents a significant threat to the economic future of Canada.”
    Only a true Norteler could believe that.

    “This is the Avro CF-105 Arrow of Canadian telecommunications industry.”

    I completely agree. The Avro Arrow, despite the hype, was not economically viable given the changes in technology, going from bombers to missiles.

    It was outclassed, just like, uhm … I forget. Some company with a name beginning with the letter “N”. I'm sure I'll think of it later.

  • exnt_x_2

    “… entitled …”

    There's that word again.

  • exnt_x_2

    “This is the Avro CF-105 Arrow of Canadian telecommunications industry.”

    And I remember reading somewhere that many laid off engineers from AVRO migrated to the States and helped put a man on the moon.

    No fate but what we make, Dudes.

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