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Facts: The facts of this case are detailed extensively in the court's opinion. In a nutshell, they are as follows. Nortel Networks, Inc. and a number of affiliates are in bankruptcy in the United States, Canada, and England. The U.S. debtors sought an order extending the automatic stay pursuant to §§ 362(a)(1) and (a)(6) against two parties: Nortel Networks UK Pension Trust Limited (the "Trustee") and The Board of the Pension Protection Fund (the "PPF") (together, the "Claimants") with respect to certain U.K. administrative proceedings (the "UK Proceedings") initiated by the UK Pensions Regulator (the "TPR"). The UK Proceedings relate to English debtors: Nortel Networks Corporation ("NNI") and Nortel Networks (CALA) Inc. ("NN CALA") and will determine whether a financial support direction ("FSD") will be issued against NNI and NN CALA and the non-U.S. Nortel entities that are being identified by the UK Proceedings. The result will be an imposition of a financial responsibility in the amount of $3.1 billion on the targets of the UK Proceeding for the statutory liability of Nortel Networks UK Limited ("NNUK") to the Trustee under the UK Pensions Act of 1995 (the "Act"). The Claimants filed proofs of claim in the U.S. proceedings asserting that NNUK's pension plan is underfunded by $3.1 billion and that the U.S. debtors (as well as non-U.S. debtors) may need to provide financial support to NNUK in order to fund the pension plan's shortfall. Nortel Networks Corporation ("NNC"), the debtors' ultimate corporate parent and NNI's direct corporate parent, is in bankruptcy in Canada. Previously, the Canadian debtors, the U.S. debtors and the English debtors, including NNUK, entered into an Interim Funding and Settlement Agreement (the "IFSA") under which the parties resolved, on an interim basis, certain allocation and post-petition cross-affiliate claims. The IFSA is subject to the final allocation of the proceeds of the sale of the debtors' (global) businesses. The Board of the Pension Protection Fund (the "PPF") is a statutory body created by the UK Pensions Act of 1995. When NNUK commenced proceedings in England, the PPF began an 'assessment period' under the Act, which means that the PPF is working with the Trustee to determine NNUK's funding position with respect to its pension plan. TPR has concluded that NNUK's pension plan is underfunded and, under the Act, the U.S. and Canadian Nortel entities may be liable; the liability arose well before the petition date. In February 2010, the Canadian court issued an order imposing a stay against the UK Proceedings.
Issue: Whether the automatic stay imposed by § 362 should be extended against the UK Proceedings.
Holding: The stay is extended.
Rule: "11 U.S.C. § 362(a)(1), provides, in part, that a 'judicial, administrative, or other proceeding against the debtor that was or could have been commenced before the commencement of the case under this title, or to recover a claim against the debtor that arose before the commencement of the case under this title,' is stayed." "An exercise of a governmental unit's police or regulator power exempts them from the automatic stay pursuant to Section 362(b)(4) of the Bankruptcy Code." Two objective tests exist for the determination of whether § 362(b)(4) is applicable: "First, under the 'pecuniary purpose' test, the issue is whether the governmental action or proceeding relates primarily to the protection of the government's pecuniary or financial interest in the debtor's property, as opposed to a matter of public safety or welfare. Š [and second, under the public policy test] [t]he issue Š is whether the governmental action is taken in furtherance of a matter of public policy, or instead is intended primarily to adjudicate private rights."
Reasoning: The court noted that the UK Proceedings could have been commenced prior to the debtors' chapter 11 petition date and, consequently, are subject to the automatic stay under § 362. The court then analyzed whether the UK Proceedings fell within § 362(b)(4) and, ultimately, held that they did not. Under the first test, the pecuniary purpose test, the court said that "neither of the Claimants is a 'governmental unit,' as defined in Section 101(27) of the Bankruptcy Code. The Trustee is a private party, and the PPF, while defined as 'a statutory body' in paragraph 1.4 of the U.K. Pension Claim, during an assessment period exercises the rights and powers of the Trustee. PPF thus stands in the shoes of the Trustee, a private party. Š [Moreover,] [t]he U.K. Proceedings do
©2010 Leif M. Clark
