More waiting could be in store for Nortel pensioners
A move by the Financial Services Commission of Ontario to reclaim $200 million from monies allocated to pensioners in the Nortel Networks Corp. bankruptcy could leave their recovery — up in the air since 2009 — in limbo for another four years.
In an application filed with the commission, Mark Zigler of Koskie Minsky LLP, who represents the pensioners, maintains that Morneau Shepell Ltd., which has administered Nortel’s pension funds since their wind-up in 2011, used mistaken assumptions in calculating the amount owed to the province’s Pension Benefits Guaranty Fund (PBGF) from his clients’ share of the Nortel estate. Morneau Shepell’s error, Zigler states, was in claiming a refund in respect of indexation benefits that PGBF did not guarantee.
The pensioners agree, however, that some $100 million is repayable to the fund, which laid out nearly $400 million to assist them while the insolvency was winding its way through the courts.
In a “notice of intended decision” dated March 12, Lester Wong, FSCO’s deputy superintendent for pensions, rejected the pensioners’ application. Zigler has filed a request for a hearing before the Financial Services Tribunal (FST), which will decide whether to uphold Wong’s decision.
Precisely when that will happen isn’t clear. But even a decision from the FST is unlikely to be the end of the wait for the pensioners.
“It can take months before the hearing is scheduled, more time until the decision is rendered, potentially followed by appeals to the Divisional Court, the Ontario Court of Appeal and the Supreme Court of Canada,” Natasha Monkman, a pensions lawyer at Hicks Morley Hamilton Stewart Storie LLP, said. “As much as four years could go by before it’s all said and done.”
The latest dispute marks the beginning of yet another period of uncertainty for the Nortel pensioners, whose pensions were cut off in 2010. Ontario pensioners had to manage on about 60 per cent of the value of their pensions during the more than eight years it took to reach a settlement and start distributing the proceeds from the insolvency.
Much of what the Ontario pensioners survived on came from advances of more than $380 million made in 2011 from PBGF.
“The early estimates and the early advances from the Fund were meant to mitigate hardship while the money from the sale of the assets in the insolvency was tied up in litigation,” Monkman said. “All PBGF could do at that point was to estimate the pensioners’ ultimate recovery as best it could.”
As it turns out, the Ontarians were the lucky ones among Canadian pensioners. No other province has established a similar “guarantee” vehicle, meaning that Nortel pensioners who did not live in Ontario had to make do on far less than the 60 per cent of expected pension income that Ontarians were receiving as they awaited the result of the legal proceedings.
When the insolvency proceedings finally settled, Morneau Shepell received more than $850 million on behalf of the pensioners. This was considerably more than what was anticipated when PBGF made its allocation to the pensioners in 2011, but far less than the underfunded deficit of about $1.9 billion in the Nortel pensions.
Nonetheless, the PBGF, backed by Morneau Shepell, wants a refund of about $221 million, which represents almost 25 per cent of the pensioners’ share of the $850 million in insolvency proceeds and some 58 per cent of what the PGBF paid out to them beginning in 2011.
The refund is payable, according to the PBGF, because the pensioners ultimately received more than the Fund had estimated would flow from the insolvency proceeds. In other words, had the PBGF known what the actual recovery from the insolvency would be, PGBF would have paid out about $221 million less than it actually did.
“The PGBF’s payment was of necessity based on imprecise estimates,” says Elizabeth Brown of Brown Mills Klinck Prezioso LLP in Toronto.
But the pensioners argue that only about $121 million is owing.
The $850 million that flowed to his clients under the insolvency, Zigler argues, includes the value of the indexation benefits under the Nortel pensions. By contrast, the regulations governing the PBGF did not (and still do not) allow the Fund to include the value of indexation when calculating pensioners’ entitlement to “guarantees” under PBGF.
“Indexation is an ‘excluded benefit’ under the PBGF statutory scheme,” Monkman said.
Simply put, the pensioners’ argument is that PBGF has no right to seek a refund in respect of benefits — in this case, the indexation benefits — that PBGF did not guarantee.
The outcome is hard to predict. “The FST is an independent and quite even-handed tribunal,” Monkman said.
But a win for the pensioners could prove Pyrrhic for pensioners in future insolvencies.
“I don’t believe that the PGBF will provide interim support for pensioners going forward if it can’t be sure what it will get back in the end,” Brown said.
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