Nortel Networks' bankruptcy just got a lot messier.
The Internal Revenue Service filed a claim against the insolvent Canadian vendor for $3 billion in back taxes, interest and other penalties, further complicating the breakup of the once-mighty company. The claim puts Nortel's creditors in even more of a bind. If U.S. bankruptcy court judge Kevin Gross decides that all or most of the IRS claims are valid, "it will deplete whatever is available to other creditors," Tony Marsh, the spokesman for Nortel retirees, told the Ottawa Citizen. "That's a pretty scary number."
Nortel's asset sales--including the proposed sale of its CDMA and LTE assets to Ericsson for $1.13 billion--are expected to fetch around $5 billion total. The $5 billion will be applied against more than $10 billion from creditors around the world. If the IRS claims go through, it will mean that creditors will get less money on the dollar for their claims, and could also wipe out claims from U.S. creditors, suppliers and employees who are owed severance pay.
The news further serves to batter an already weakened Nortel. Earlier this month, CEO Mike Zafirovski stepped down from the company, and Nortel cut the size of its board from nine members to three. The company posted a $274 million loss in its most recent quarter, with revenues down 25 percent. As of June 30, Nortel said it had a cash balance of $2.56 billion.
For more:
- see this Ottawa Citizen article
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