Nortel files for Chapter 11 bankruptcy

Nortel Networks Corp. filed for Chapter 11 bankruptcy protection in the United States on Wednesday, one day before it was due to make a $107 million interest payment.

The Toronto-based company and several of its affiliates made the filing in federal bankruptcy court in Delaware.

The move came shortly after the trading of Nortel's shares were halted on the TSX.

According to The Globe and Mail, Nortel is also expected to file for bankruptcy protection in Toronto.

"Bankruptcy protection keeps the creditors at bay while you reorganize or sell parts of the business," BNN's Michael Kane reported Wednesday.

The company's board of directors reportedly met in Toronto Tuesday to discuss Nortel's future.

On Thursday, the telecom firm was due to repay a $107-million interest debt on bonds, which would have amounted to about 10 per cent of the company's North American cash reserves.

"They don't have $107 million dollars just to make an interest payment," Kane said.

Canada's most valuable company at one time, Nortel stocks traded as high as $124.50 a share during the tech boom in 2000, said Kane.

On Tuesday, the stock closed at 38.5 cents a share.

"People who are close to the situation are saying to us that although there is a great deal of equity in the company the possibility of it staying together as the Nortel Networks we knew is fairly slim," Kane said.

"We're likely going to see it sold off in bits and pieces."

After the telecom bubble burst, the company failed to re-establish itself and was plagued by accounting scandals and weakening demand.

"It has been a changing landscape that Nortel has been unable to adjust to," Kane said.