If the partial settlement wasn’t bad enough, the court has rejected that deal as preferential over other debt holders while politicians ponder

Nortel pensioners and their supporters rallied on Parliament Hill Thursday. Photograph by: Pat McGrath, The Ottawa Citizen

The inequity of a legal system that can reward executives with millions of dollars in bonuses while forcing pensioners with disabilities onto welfare was backed by the Ontario Super Court as the Nortel $57 million pension agreement was thrown out.

In a previous story we reported the views of Nortel’s pensioned employees who lost their benefits as a result of Nortel’s bankruptcy. Nortel pays bonuses to execs and pittance to retirees and disabled.

That agreement which only lasted until the end of 2010 has been thrown out by a judge as prejudicial to other creditors. Once again the legal system has prejudice the employees in favor of executives and bankers.

While the Harper Conservative government talks and promises to reform Canada’s pension system, they are marking time with no laws that could save these employees.  This is a travesty in Canada that the recession and it’s aftermath has made urgent. The Tories fiddle while Canadian employees take the heat.

The Opposition NDP and Liberals could force the minority government’s hand on this issue. Is their talk supporting pension reform mere political rhetoric, just another bluff from Jack Layton and Michael Ignatieff?

Ottawa Citizen — An Ontario Superior Court judge has thrown out a $57-million Nortel Networks sunset deal which was scheduled to extend health and pension benefits to thousands of pensioners and others to the end of the year.

Mr. Justice Geoffrey Morawetz in a long awaited decision agreed with lawyers representing major U.S. and Canadian creditors that is unfair to approve a key condition which allows Nortel pensioners, long-term disability recipients and others to demand a bigger share of Nortel assets if federal bankruptcy rules change.

He called the deal “a flawed agreement that cannot be approved” because “it creates risk rather than eliminates uncertainty.”

He said that the condition is unfair to other creditors because it requires them to “make concessions in favour of the former employees and long-term disability employees today, and be subject to the uncertainty of unknown legislation in the future.”

The decision means that Nortel could start winding up the medical, dental, life insurance and income support benefits as early as the end of the month. It would hit 12,000 Canadian pensioners, 400 long-term disability recipients and 7,000 other former employees with claims ranging from severance payments to future pension benefits.

Spokesmen for pensioners and disable employees declined comment Saturday while they get a chance to talk with their lawyers. One pensioner said ” As you can imagine the judge’s decision was a surprise and pensioners are very concerned about what will happen at month’s end.”

However, it appears more likely that the decision sets the stage for intensive new negotiations in which pensioner representatives and the company try to find a new way through the impasse.

Morawetz promised to help. He said that because the decision was released so close to the March 31 deadline for extending benefits — or winding up the health care plan _ that he would make every effort to accomodate the parties in reaching a new agreement. He heard three days of argument in early March but did not release his decision until late Friday.

If new negotations fail, the result could be more challenges in the 14-month long marathon to windup the troubled company.

To get the Nortel assets out of bankrutpcy protection proceedings will require a settlement that satisfies at least half the individual claimants and two-thirds of the total dollar claims.

The Nortel pensioners or the big creditors could use their weight on either side of the equation to block an eventual deal, plunging the company into formal bankruptcy and liquidation proceedings. However, Morawetz noted that any move to declare an impasse and move the company into formal bankruptcy would require a court hearing.

Morawetz endorsed the rest of the $57-million sunset package despite opposition from many long-term disability recipients and some pensioners. They were upset about a provision which blocks lawsuits, short of alleged fraud, against Nortel directors, executives, insurance companies and others over major shortfalls in a health and income protection trust fund and in a pension plan.

Many long-term disability recipients opposed the deal, saying that it would hit their benefits much harder than other groups. Morawetz acknowledged the testimony of the group that the deal leaves many with “uncertainty, helplessness and despair” and they believe “certain individuals will be unable to support themselves once their benefits run out.”

But he noted the broad group would receive benefits under the settlement agreement that requires compromises by all sides. He said granting Nortel directors and others protection from lawsuits as a condition of the deal “was not overly broad or offensive to public policy.”

The Nortel Canadian operations are under pressure to wind up business with the sale of most operating divisions. U.S. creditors gave the cash-strapped Canadian operations $191 million in funding in January on condition that it would be the last payment. They also extracted conditions including a $2 billion charge against Canadian assets to settle a U.S taxation claim.

Under the February settlement deal with Nortel pensioners, Nortel agreed to extend medical, dental and life insurance coverage to the end of December. The long-term disability recipients would also get income support payments to the end of December. The deal allowed Nortel to start withdrawing financial support for the pension plan at the end of March and all support at the end of September. About 1,200 Canadian employees who were dismissed in the last year would get $3,000 each toward their eventual severance claims.

Nortel pensioners are using the breathing space to measure the significant funding shortfall in the health coverage plan and search for alternatives. They are also counting on provincial regulators, including a potential new Ontario pension rescue agency, to take over the pension plan. They want to avoid an immediate windup which could trigger reduction in pension benefits because the plan is 30 per cent underfunded..

As a condition of the sunset deal, the pensioner and employee group dropped the right to assert special status when the Nortel assets are ultimately divided up in court. But they kept the right to seek higher claims if the federal government changes bankruptcy law to give former employees a higher priority in claims against Nortel assets.

At present, virtually all Nortel creditors including bondholders, suppliers, pensioners, former employees and others are unsecured creditors with an equal claim to whatever assets are left when the Nortel assets are finally distributed. They face big cuts to their claims.

Nortel has officially recognized $7.3 billlion U.S. in liabilities subject to the bankruptcy process as of Dec. 31. However, it also said there are 6,983 claims in the U.S. and Canada involving a total of $39.14 billion U.S. While many are duplicates of claims against several geographic and operations divisions, the final total will far surpass an estimated $7 billion in cash, proceeds from division sales and other assets.

The pensioner group has been lobbying federal political parties to change the law and most opposition parties are supporting the campaign. They are arguing that major countries around the world now give employee and pensioners higher priority in the distribution of assets.

But the federal government has so far shown no plans to move now, preferring to gradually reform pension and income security rules as part of a federal-provincial review.. In the throne speech, the government said it “will explore ways to better protect workers when their employers go bankrupt ” but promised no actions in the budget.