Bankrupcy & Insolvency – Law is Cool The law school blog and podcast from Canada Wed, 30 Sep 2015 13:10:01 +0000 en-US hourly 1 1338880 The RIM vs. Ericsson Beef Wed, 23 Sep 2009 00:02:02 +0000 What’s in it for RIM?

Patents. Currently RIM pays millions of dollars for patents to use in their blackberry devices. However, RIM would save some big figures with the purchase of Nortel’s patents, because the assets RIM is mainly interested in are patents Nortel holds in next-generation wireless technology called Long-Term Evolution, or LTE.

Analysts say the patents would reduce the millions of dollars in royalty fees RIM pays annually for technology it uses in its handsets.

Nortel has said the three bidders that entered into the auction– Ericsson, Nokia Siemens Networks and U. S. private equity firm MatlinPatterson — all agreed to the same terms it gave RIM, however, the auction did not include the sale of the LTE patents, Nortel’s lawyers said in court July 28.

The transaction has ignited a political firestorm over whether the assets, which include leading-edge technology for next-generation cellphone networks, should be allowed to be sold to a foreign firm or whether Ottawa should cancel the sale through national “net benefit” and security rules newly written into the Investment Canada Act.

There are 2 ways to review under the Investment Canada Act

(1) The final decision for the sale now lies with Industry Minister Tony Clement, who has said his ministry is checking into whether the deal deserves to be reviewed to see whether it violates the foreign-investment rules. The current rules demand a federal review of any asset sale to a foreign firm that exceeds $312-million.
(2) George Riedel, Nortel’s chief strategy officer told the committee the book value of the assets being sold was US$149-million. A separate review may be required if the sale is deemed a national-security concern, which carries no monetary conditions.

A senior government official told The Globe and Mail last week that Ottawa is evaluating the assets of the transaction at book value for the purposes of deciding whether the deal must be reviewed under the Investment Canada Act. Nortel and Ericsson have set the book value of their deal at $149-million, far short of the $312-million (Canadian) threshold that triggers a review.

Book value reflects the balance sheet value of a deal’s assets not including such intangible assets as intellectual property and employee talent.

Richard Corley, a lawyer with Blake, Cassels & Graydon LLP and counsel to Ericsson, says “High technology businesses are quite often asset-light.” “You are not buying the values of the chairs and the bits and pieces. What you’re buying is the earnings capacity.”

On national security, Ericsson says that as an equipment supplier it does not manage or control sensitive information. Further reason for the government to not interfere.

RIM’s beef over the pending sale of certain wireless assets of Nortel to a foreign rival, called on Ottawa to speed up the adoption of new rules in the Investment Canada Act that could be used to cancel the controversial transaction.
“RIM thinks that a $1.13-billion (USD) transaction must be reviewed to ensure that Canada’s national interests are met.”

Under current legislation: deals involving the sale to foreign firms of technologies in sensitive sectors such as telecommunications are subject to federal scrutiny and possible annulment. However, that applies only if the asset value exceeds $312-million. Nortel told a parliamentary committee that the book value of the wireless assets going to Ericsson was just $149-million, meaning a government review is not required.

On the other hand, the Canadian government has amended the Investment Canada Act this year to consider the “enterprise value” rather than book value in such deals. Enterprise value includes intellectual property and employees going to the foreign firm. The new rules, however, are not yet in force, leaving federal authorities to use the current framework.

Federal authorities have shown little enthusiasm for blocking the sale and Prime Minister Stephen Harper, has already stated there would be no attempt to alter Canada’s current foreign investment rules.

RIM releases a Survey: From market researcher Strategic Counsel that showed 55% of Canadians who were aware of the Ericsson sale were opposed to it.

More Spice in your life

At the end of August, the U. S. tax authorities sent chills to Nortel Networks Corp. creditors by submitting an unexpected and very large US$3-billion claim for back taxes, interest and/or penalties. If valid, the IRS claim would apply only to Nortel’s US unit, Nortel Networks Inc. Since tax claims often receive priority in a bankruptcy proceeding, this raises the possibility of wiping out a substantial majority of the claims from US bondholders, suppliers and employees owed severance pay.

The IRS claim may intensify the pressure for U. S. claimants in the meantime to prevent further transfers of cash from Nortel’s U. S. operations to Canada. Because under Nortel’s complicated global structure, the company shifts money from cash-rich regions such as the United States (where revenues from the sale of products generally exceed expenses) to jurisdictions such as Canada — which does a lot of expensive R&D but generates relatively few revenues for the company.

Canadian creditors had been concerned that Nortel Canada’s low cash balances would translate into a claims settlement ratio as low as 12¢ on the dollar, while U. S. and British claimants were expected to receive 45¢ on the dollar. But now the IRS bill could significantly deteriorate the U. S. return rate.

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One Bloor St litigation Tue, 21 Jul 2009 00:16:23 +0000 Court action a ruse to steal One Bloor, says developer


Mitch Kowalski, Man to Watch in Tough Legal Times Wed, 24 Dec 2008 01:37:52 +0000 Last week I met with Mitch Kowalski of the Legal Post.  He mentioned our conversation earlier today on the site, which is the kick in the butt I needed to do my own write-up on it during our break from school.

Mitch is an alumn from my school, Western Law, but has chosen a career path unique from most. After practicing for many years on Bay St. he decided to open a writing center, first at Yorkville, and then moving to a more central location on Bloor West.

And just like those television infomercials, Mitch not only runs the place, but he’s a client too.

Mitch’s column on the Legal Post (RSS) has become a popular one among many lawyers and law students wary of these tough economic times.

Mitch forecasts that current graduates (2009) will probably have it the worst because nobody really knows what to expect.  Canadian law school grads might just be fighting for shifts at Tim Horton’s for a few years.  They should probably be looking at other careers such as NGOs or trying their hands at magic.  In any case, it’s probably still better than doing porn.

Major law firms continue to be in denial in a scenario scarier than Halloween.  Most of these firms have come into existence well after the Great Depression, and their size has never been tested by a serious and prolonged recession.

The problem is that lawyers don’t have a lot of work during a recession.

Some of the potential growth areas such as labour and employment, IP, and even bankruptcy and insolvency, won’t make up for shortages in major corporate work that employs massive numbers of lawyers within the major firms.

With every economic threat there are also opportunities, and Mitch thinks this is an opportunity to transform the legal profession.  The very nature of law firms may change, with some even incorporating other professionals like accountants into their partnership structure, and others even going public.

Cost-saving may force firms to look overseas, instead of using inexpensive articling students (who get paid just over twice minimum wage in some firms when salary/hours is calculated).

The days of sending armies of students to the law library to photocopy into the wee hours of the morning may be ending, because these students still cost too much resources for their office space, workstations and training.  Overhead from downtown rent continues to be one of the major costs after salaries in most large law firms.  Associate turnover due to burnout and mismanagement is completely ignored and accepted as the price of doing business.

The billable hour also attracts considerable wrath from Mitch’s scrutiny.

Naysayers might shun worrying over the ‘sky is falling’ rhetoric.  New grads might feel like they’ve been slipped a mickey by the legal industry.  But those who want it raw and are entering the brave new economic world willing to turn to the blogs for advice, Mitch’s column is a good place to start for a translation of things to come.

The Legal Post is also up for an ABA Award, and you can vote for them here to help make Canadian blogs a prominent landmark in the legal blogosphere.

Cross-posted to Slaw

Obama Win Might be a Boon for Law Firms Thu, 06 Nov 2008 17:56:41 +0000 Carolyn Elefant thinks that some law firms are going to see a major increase in business as a result of this week’s election.

Obama is expected to increase regulation in a number of areas, including health and banking, and might provide incentives for green technologies.

Larry Bodine and Zack Needles identify several of growth:

  1. regulatory law and enforcement work
  2. litigation
  3. “green” law
  4. real estate
  5. labour law
  6. bankruptcy
  7. government contracts

Lawyers with expertise in these areas can expect an increase in work.

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Credit-Related Derivatives are “Financial WMD’s” Sat, 04 Oct 2008 14:31:22 +0000 American investor and philanthropist Warren Buffet calls credit-related derivatives a financial weapon of mass destruction, and he claims they just went off.

Prof. Jesse Fried of Boalt Hall School of Law, University of California, Berkeley, posted an article today on the Harvard Law Corporate Governance Blog.  Fried points out,

Over the last two years, Wall Street financiers took home more than $60 billion in bonuses, much of it in cash. Lehman Bros. alone shelled out almost $6 billion in bonuses in 2007; it recently filed for bankruptcy.

Analysts have pointed to the Lehman Brothers and AIG bailout as the reason for the massive economic slowdown in the U.S.

A Scotiabank Group report indicated yesterday that this may affect Canada as well,

We are now forecasting recessions in both countries.

Fried recommends a claw back of Wall Street bonuses to share the cost of economic troubles, and avert future risks.  He points to the Bankruptcy Code as the basis for recovering pre-bankruptcy bonus payments.

If companies do not become insolvent, the New York “fraudulent conveyance” statute allows insider payment recovery if:

  1. fair consideration for payment was not received
  2. an unreasonable small capital for business operations existed

Fried explains,

Some courts have held that managerial services do not constitute fair consideration for purposes of this type of statute. The statute may thus permit the government, to the extent it is considered an unpaid creditor of a bailed-out firm, to recover a bonus payment to one of that firm’s executives.