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The unsecured creditors committee of 360networks Inc. on Wednesday launched a $101.1 million suit against Nortel Networks Corp. over transactions between the two companies before 360networks filed for bankruptcy. The suit, which lawyers describe as one of the largest preferential transfer cases, involved payments of $55.4 million in cash to Nortel and at least $45.7 million in equipment returns. Because the transactions occurred within 90 days of 360networks’ June 2001 bankruptcy, the suit alleges that Nortel’s debts were given preference over the debtor’s other unsecured claims. They are seeking to recover the entire $101.1 million. 360networks, a long-haul network operator, emerged from bankruptcy protection after a joint Canadian-U.S. filing in November. The company’s reorganization plan allows creditors to keep 85 percent of the first $30 million they recover through such claims and 80 percent of all proceeds thereafter. The remainder would go to 360networks. “Based on the facts that we’re aware of, we expect the suit to be successful,” said Norman Kinel of Sidley Austin Brown & Wood, who represents the unsecured creditors committee, which is made up entirely of trade vendors. A pretrial conference is scheduled for Feb. 20 before U.S. Bankruptcy Judge Allan Gropper in the Southern District of New York. A Nortel spokesman declined comment. A court filing by the creditors committee states that the company declined a March 2002 demand to return the payments. There are defenses available to companies facing preference suits, depending on the circumstances of the transfer. Defendants can try to show that some of the transfer in question was akin to a deposit or an advance for a later shipment. They can also attempt to demonstrate that while they received payment within 90 days of a bankruptcy filing, the transaction simply met the ordinary terms of an existing business arrangement, such as making a payment within 30 days. “We have looked at how the payments were made, and they were not made according to ordinary terms,” Kinel said. “We do not believe that Nortel will have valid defenses.” Kinel said that in the coming months, the creditors expect to launch hundreds of other suits involving cash payments and returns of equipment of $200 million more. “About 99 percent of all preference cases are settled,” said Bill Rochelle of Fulbright & Jaworski. “Without knowing all of the particulars of the 360 case, our experience is that the common garden variety preference claim is settled between 25 and 40 cents on the dollar. Typically the sooner it’s settled, the cheaper it settles.” Copyright (c)2003 TDD, LLC. All rights reserved.

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