Nortel has filed for bankruptcy protection.
The company has announced that it and some of its Canadian subsidiaries will seek creditor protection under the Companies' Creditors Arrangement Act in Canada.
The company's US subsidiaries, including Nortel Networks and Nortel Networks Capital, have also filed voluntary petitions in the United States under Chapter 11 of the U.S. Bankruptcy Code. The EMEA subsidiaries are also expected to make consequential filings in Europe.
Under US Chapter 11 bankruptcy protection law, a firm can keep trading while it aims to sort out its finances. Following changes in late 2005 to develop the brand, it claimed that ‘the global financial crisis and recession have compounded Nortel's financial challenges and directly impacted its ability to complete this transformation'.
Nortel said: “The company's normal day-to-day operations are expected to continue without interruption. Nortel remains 100 per cent focused on serving customers worldwide through continued R&D investments and support of its product portfolio to fulfil customer needs.”
Mike Zafirovsk, CEO and president of Nortel, said: “Nortel must be put on a sound financial footing once and for all. These actions are imperative so that Nortel can build on its core strengths and become the highly focused and financially sound leader in the communications industry that its people, technology and customer relationships show it ought to be.
“I am confident that the actions we're announcing today will be the fastest, most effective means to translate our improved operational efficiency, double-digit productivity, focused R&D and technology leadership into long-term success. I want to reaffirm Nortel's dedication to delivering world-class solutions and services to customers."
The filing was made a day before the firm was due to make a $107m interest payment on outstanding loans. Nortel shares fell by 76 per cent in pre-market trading, with analysts saying the move showed that management believed the situation would deteriorate.