Intransigence = Mediation Failures (the Nortel Networks Bankruptcy, Part Three)

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Dogged

By Donald L. Swanson

Have you ever noticed that synonyms for “intransigence” often come from farm animals: e.g., bullheadedness, doggedness, pigheadedness, stubborn as a mule?

Such qualities aren’t very helpful on a farm.  But they are killers in mediation.

“Intransigence” describes the four-time failures of the Nortel Networks mediation efforts to reach a funds allocation and distribution solution.  All mediating parties hold very-large claims, all parties take intransigent positions, and no one is willing to concede anything.

Such failures seem to come from the farm animal characteristics noted above.

In reading what’s happened in the Nortel case, I hearken back to an experience where large claim-holders dominate a bankruptcy case and get their way throughout.  They are intransigent.  They are confident.  They are persistent.  They are inflexible.  They are dogged . . . bullheaded . . . stubborn as a mule . . . etc.  And they win.

By every outside-looking-in appearance, that’s exactly what’s happened in the Nortel bankruptcy.  And all parties are large claim-holders.

Here’s the prior experience:

A long time ago, I have my first-of-rare experiences in a Chapter 11 mega-case.  The case has a group of similarly-situated creditors with very-large unsecured claims.  It also has a large number of relatively-small claims that, collectively, add up to a substantial amount.

We’re sitting in the initial Official Committee meeting and interviewing candidates for Committee counsel.  I’m new to all this and am in a listen-and-learn and try-to-figure-out-how-this-works mode [and more-than-a-little intimidated too]. We interview a half-dozen law firms, all of whom are impressive.

Once the interviews conclude, consensus arises quickly for one of the law firms. And the next thing I know, we’ve decided on a firm to hire. The first parties to focus-in on this firm at the meeting are the very-large creditors. At the time, however, I can’t quite figure out how the law firm retention decision comes about so quickly, easily, with limited discussion, and with little dissent.

What I realize later is that the large creditors are old-hands at this: they know who they want, and they know how to handle newbies like us to get their way.

Fast forward toward plan-presentation time. Sec. 363 sales are concluded and distribution discussions are far along. All of a sudden, it seems, Committee counsel is proposing an allocation of assets among debtor entities that leaves our group of individual and small-business creditors without any material distribution. The vast bulk of all available funds go (after professional fees are paid) to the very-large claims.

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Bullheaded

Our group makes a push for a different allocation that seems proper and correct under the facts and law — which would get some money to our group. But, no, that’s not possible. There is little-to-no discussion permitted on the subject.  Compromise isn’t even a part of the equation.  Committee counsel pushes its position forward, and we are squelched.

Our view is that the Committee’s allocation scheme in favor of the very-large claimants is improper — maybe even fraudulent.  But it prevails.

My impression from this and other experiences is that very-large claimants can control a case.  So they tend to be intransigent on allocation / distribution issues. Intransigence appears to stem from a belief, based on historical successes, that they can and will dictate the resolution of such disputes.

So . . . back to the Nortel mediation failures and the expenditure of nearly $2 billion in legal fees from the $7.3 billion fund at issue:

–All constituencies in the case have very-large claims, so everyone has a sense that they can and will dictate the resolution of the case.

–And, apparently, everyone is in a fight-to-the-death mode to protect their turf and their positions on this.

Such is my impression / theory based on hard experience.

Does anyone have a better and more balanced perspective?

 

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