Re the Nortel Group

Applicable principles when office-holders ask the court to bless compromises

Administration – litigation – compromises – court approval – momentous decisions

The administrators of 19 companies in the Nortel group applied for directions that they be at liberty to enter into a global settlement of the vast majority of disputes that had arisen in relation to the group’s affairs. The settlement had already been entered into but the parties to it had agreed it would only become effective upon the court granting its approval. If approved, it would allow the distribution of approximately US$ 7 billion of assets.

Snowden J approved the settlement. The starting point was that in commercial matters, such as the approval of compromises, administrators were generally expected to exercise their own judgment rather than rely on the court’s approval, but administrators could seek the court’s approval where there are “particular reasons” for doing so, per MF Global UK Ltd [2014] EWHC 2222 (Ch).

One category of cases in which there would be “particular reasons” are those that are analogous to an application by the trustees of private trusts seeking the court’s blessing of momentous decisions per Hart J’s dictum in Public Trustee v Cooper [2001] WTLR 901. In these cases, there is no surrender of discretion to the court, but the court approves the decision if trustees could take it and still comply with their duties.

Applying that guidance to administrators, the court should be concerned to ensure that the proposed exercise is within the administrator’s power; that the administrator genuinely holds the view that what he proposes will be for the benefit of the company and its creditors; and that he is acting rationally and without being affected by a conflict of interest in reaching that view. The court should, however, not withhold its approval merely because it would not itself have exercised the power in the way proposed. The administrator is required to put all the material facts before the court.

Snowden J concluded that the complexity and scale of the litigation in this case provided particular reasons for blessing the administrators’ decision.  The judge concluded, on the evidence, that this was a proper case in which to bless the decision.

The case provides a useful insight in the transposition of principles developed in a trust context to office-holders. Whilst this judgment should not cause office-holders to seek the court’s blessing of every decision, they have the comfort of knowing they can ask for the court’s assistance when they propose to take truly momentous decisions.