Nortel creditors, already enduring drawn-out auction processes for the bankrupt company’s depreciating business assets, got bad news last week when it was revealed that the USA’s Internal Revenue Services (IRS) filed a claim against Nortel for $3 billion in taxes and interest.
If you listen carefully, you can hear Nortel debtors screaming into the abyss.
According to a Reuters report, the IRS filing lists $2.97 billion in unsecured priority claims and $49.3 million in unsecured general claims. Covering a period from 1998 to 2008, the claim lists taxes due of $1.80 billion and interest due of $1.16 billion.
That’s far from pocket change, which is about all Nortel’s creditors and debt holders might see at the conclusion of bankruptcy proceedings. Much depends on whether Nortel has grounds to challenge the claim. If it does, there’s a possibility an eventual settlement, as decided by the bankruptcy judge, could involve a significantly lower amount than that specified in the IRS claim.
Still, as James Bagnall writes in the Ottawa Citzen, the implications are considerable for Nortel’s creditors in the USA, Britain, and Canada:
If Nortel completes the sale of its global assets as planned, it is expected to have little more than $5 billion (all figures U.S.) in cash to distribute. This is to be applied against more than $10 billion worth of claims arising from creditors in Canada, the U.S., Britain and many other jurisdictions. Claimants — from company suppliers to pensioners — would receive roughly 50 cents on the dollar.
However, if the new demand from the U.S. Internal Revenue Service is added, then the settlement ratio would tumble to less than 40 cents on the dollar.
As Bagnall writes at the end of his story, until the IRS discloses more information about its claim, Nortel creditors will be afflicted by increased anxiety regarding their eventual settlements.