HSF cashes in on seven-year Nortel bankruptcy with $400m fees

Herbert Smith Freehills (HSF) has earned almost $400m (£283m) in fees for its work on the ongoing administration of Canadian telecoms giant Nortel Networks, an administrators’ report has found.

The firm is the largest sole recipient of the total $1.689bn (£1.2bn) paid out by bankrupt Nortel Networks to lawyers and administrators worldwide over the course of its seven-year administration.

HSF has been principal legal adviser to Nortel’s administrators EY for the whole of the bankruptcy process in Europe.

A raft of firms including Akin Gump Strauss Hauer & Feld, Cleary Gottlieb Steen & Hamilton and  Milbank Tweed Hadley & McCloy continue to advise the administrators in the US and Canada.

In the US Nortel has paid out $491.3m in legal and professional fees since its collapse in 2009, while in Canada it has so far paid out $462.8m.

The bulk of costs incurred in Europe, the Middle East and Africa (EMEA) have been paid in the UK, according to the report. HSF’s London office received more than 80 per cent of the total Nortel EMEA spend, or £231m, in the seven-year period until January 2016.

The joint administrators received $335.4m in fees in the EMEA region over the same period.

The report also shows Nortel’s legal costs are continuing to rise. The second half of 2015 saw an uptick in lawyers’ fees globally of $24m including additional costs of $5.9m in the EMEA region, most of which was incurred in the UK.

UK legal costs increased from £227m to £230m in the six months between July 2015 and January 2016.

The mounting costs continue to chip away at the approximate $7.3bn of Nortel assets that will be divided among the company’s pensioners and other creditors pending the resolution of a lengthy legal battle in the Canadian and US courts.

A Canadian court ruled in May 2015 that $500m more should go to UK creditors than the $1.3bn requested, leaving more money for pensioners and less for bondholders.

It has since emerged that subsequent mediation failed to reach an agreement over the distributions of the total $7bn of distributions of pensions and other assets, making it likely the bankruptcy saga will roll into its eighth year.

Legal and administrators’ costs have almost reached 30 per cent of the total due to Nortel’s creditors, with spend edging closer to the $2bn mark globally.

Nortel was one of Canada’s biggest companies prior to going into administration, at its height accounting for more than a third of the total valuation of all the companies listed on the Toronto Stock Exchange.

The business went into administration in 2009 following upheaval in market conditions, an accounting scandal that severely reduced its stock price and the wider financial crisis.

The company sold off various aspects of its business in the wake of its collapse, including patents and wireless technology, which has formed much of the disputed cash pot.

The advisers in full

Canadian monitor

  • Ernst & Young

Canadian counsel

  • Allen & Overy
  • Buchanan Ingersoll & Rooney
  • Goodmans

US advisers

  • Cleary Gottlieb Steen & Hamilton
  • Morris Nichols Arsht & Tunnell
  • Akin Gump Strauss Hauer & Feld
  • Whiteford Taylor & Preston
  • Milbank Tweed Hadley & McCloy
  • Pachulski Stang Ziehl & Jones

European administrator

  • Ernst & Young

European adviser

  • Herbert Smith Freehills

European counsel

  • Hughes Hubbard & Reed
  • Young Conaway Stargatt & Taylor
  • Osborne Clarke
  • Betto Seraglini 
  • Hogan Lovells