Is Nortel Networks another victim of the economy or of bad management and fraud? The Canada-based provider of telecommunications equipment filed for bankruptcy protection as part of a plan to turn the company around, it announced Wednesday. The application will be reviewed by the Ontario Superior Court of Justice.
Nortel is also asking the court to approve a deal with one of its key suppliers, Flextronics. Under that deal, Nortel Networks Limited will purchase $120 million of existing inventory by July 1 and make quarterly purchases of other inventory.
Two of the company’s U.S. subsidiaries, Nortel Networks and Nortel Capital, have also filed for Chapter 11 bankruptcy protection. The company’s EMEA subsidiaries will also be filing for protection in Europe.
The move to protect assets came after the company’s board said it had exhausted other efforts. Nortel, however, may also be trying to protect itself from $107 million it owes in interest payments.
Nortel’s filing shouldn’t be a surprise. In the last several years the company has had more than a dozen rounds of layoffs. Just last year Nortel paid $35 million in a civil suit filed by U.S. regulators after the Securities and Exchange Commission said the company was involved in two fraudulent account schemes to meet expectations on Wall Street. Former Nortel CEO Frank Dunn was charged with criminal fraud for also allegedly tweaking the company’s financials in 2002 and 2003.
Current ?CEO and President Mike Zafirovski began an effort to turn the company around in late 2005, but the global financial crisis and recession compounded the company’s bottom line, according to Nortel. In November, Nortel reported $3.4 billion in third-quarter losses.
“Nortel must be put on a sound financial footing once and for all,” said Zafirovski. “These actions are imperative so that Nortel can build on its core strengths and…