The move by the former kingpin of Canada's technology sector, Means that Nortel will shed more jobs from its global workforce of 30,000 employees and likely pin its future hopes on wireless technology, the fastest growing part of the telecom sector.
The bankruptcy filing will affect the company's debts and other operations, including sponsorships, but Nortel says it remains committed to sponsoring the 2010 Winter Olympic Games in Vancouver. The company is also a major sponsor of the 2012 Summer Olympics in London.
Long-suffering Nortel has been trying to restructure for more than three years and becomes the first major North American technology company to be forced into bankruptcy protection by the the global downturn and credit market crunch.
"Nortel must be put on a sound financial footing once and for all," president and CEO Mike Zafirovski said in a news release announcing the bankruptcy filings.
North America's biggest maker of telecom gear has faced a variety of troubles since the telecom bubble burst eight years ago - including accounting problems that devastated its stock and led to criminal charges against some former executives.
Most recently, the slumping economy squeezed orders from its phone company customers and ate into its revenues, helping to produce mounting losses.
The company directly and through joint ventures employs about 30,000 people around the world, including 5,800 at Canadian operations in Ottawa and Toronto.
It plans to continue business as usual while it restructures, but job cuts are likely as it tries to lower costs and deal with a huge debt to remain competitive.
Moreover, Nortel will come under pressure to assure customers it can stay alive and be able to supply their future technology and equipment needs.
"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," Zafirovski said.
In Ottawa, federal Industry Minister Tony Clement said Ottawa is willing to provide some financing through the Export Development Canada Crown corporation to help Nortel restructure and emerge from bankruptcy protection as a viable company.
"EDC has agreed to provide up to $30 million in short-term financing through its existing bonding facility and is open to discussing with Nortel post-filing financing in conjunction with other financial institutions," Clement said.
Ontario Premier Dalton McGuinty said that Nortel had not applied for provincial aid, but a government spokeswoman later corrected his statement, saying the company has in fact been "in discussions" with Economic Development Minister Michael Bryant's office about funding.
"We'll see how things shake out in the end and what it means specifically for jobs in Ontario," McGuinty said in Mississauga, Ont., just west of Toronto.
"I remain hopeful that Nortel will experience ultimately a renaissance of some kind and that will be of benefit to the Ontario economy and to Ontario workers."
Nortel's predecessors have been in business since 1882, and the company, once known as Northern Electric, grew rapidly making telephones for its former Bell Canada parent. It later got heavily into network technology through aggressive - but ill-fated acquisitions - in the United States.
At one point in 2000 the company accounted for one-third of the market value on the entire Toronto Stock Exchange and was Canada's most widely held and touted stock, known to investors around the world.
Wednesday's filings came a day before Nortel was due to repay a $107-million interest debt on its bonds. The transaction would deplete Nortel's North American cash reserves by about 10 per cent.
Creditor protection would give the company more opportunities to explore restructuring options or sell some of its assets, but it would also make the company more vulnerable to a quick sale.
A spokesman for Nortel says that while there are no layoffs currently planned as part of the restructuring announcement, the company might have to cut its workforce in the future.
"Let's be clear, this is a restructuring and we will have to make the tough but necessary decisions to ensure that our costs come down, and we do expect that to impact employees," said Mohammed Nakhooda.
He declined to comment on whether any other companies have expressed interest in acquiring any unit of Nortel.
"We're not in any position to announce anything with respect to strategy," he said.
The latest round of problems at Nortel began in November when the company said it would cut another 1,300 jobs and freeze salaries after a US$3.41 billion quarterly loss and lower sales amid "worsening economic conditions."
Nortel once had more 95,000 employees and a stock market value of C$366 billion on the Toronto Stock Exchange, making it Canada's most valuable company. On Wednesday, the company was worth just over $64 million.
Since the telecom bubble burst, Nortel has grappled with a variety of financial problems, and shrank to less than one-third its peak size, but failed to re-establish itself as a leading player in its industry even though it sits on about $2.4 billion in cash.
Nortel could still persevere and make it through their latest round of trouble, suggests Peter Chapman of Bankruptcy Creditors' Service Inc. in Pennsylvania.
"The Chapter 11 and CCAA proceedings will provide Nortel with the ability to sell useless assets, walk away from every bad business deal, improve its operations and operating margins, and knock its $11-billion debt load down to a reasonable level," he said in an e-mail to The Canadian Press.
Chapman said he expects shareholders will likely be wiped out as owners, and the company will be transferred into the hands of its creditors.
Rick Franklin, an analyst at Edward Jones brokerage, says a series of bad decisions led to Nortel's current predicament.
"They put too much debt on the company when times were good, and times didn't stay good forever," he said.
"Their position in the market changed dramatically and they never recovered from that."
Dominion Bond Rating Services downgraded the ratings of Nortel's stock from CCC to D.
Shares in Nortel are pending a delisting review by the exchange to ensure that the company is meeting the requirements of continued listing.
At their peak, and before consolidation, Nortel shares hit $124.50 on the TSX in July, 2000.
Here are some facts about Nortel Networks Corp. (TSX:NT), which has sought court protection from its creditors:
History: Originally a manufacturing subsidiary of Bell Telephone, which later became Bell Canada and then BCE Inc. (TSX:BCE). Nortel was spun off as an independent, publicly traded company in the late 1990s and became for a time Canada's most valuable company.
Stock: All-time high of $124.50 on July 26, 2000, which would be the equivalent of $1,245 in today's terms following a stock consolidation. Shares were worth just 13 cents each on Wednesday.
Employees: Nortel and joint ventures employ about 30,000 people around the world, including 5,800 at Canadian operations in Ottawa and Toronto.
Quote: "Nortel must be put on a sound financial footing once and for all." - Mike Zafirovski, Nortel's president and chief executive since November 2005.
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