Nortel has been struggling to recover from an accounting scandal

A default could result because an accounting errors will delay its full year results by a month, Nortel said.

It added the mistakes would also force it to restate previous results for the year, as it posted a preliminary fourth quarter loss of $2.21bn.

Nortel is now working to get waivers from lenders.

Nortel is trying to recover from an accounting scandal dating back to 2003.

The problem led to the sacking of its Canadian chief executive Frank Dunn and two other executives.

Legal costs

The loss for the three months to 31 December followed a profit of $107m for the same period a year earlier. The fall came despite a 14% rise in revenues to $2.59bn.

Our priority is to have accurate financial information Mike Zafirovski, Nortel Check Nortel's shares

The group blamed litigation expenses of almost $2.47bn for the drop - Nortel has agreed settlements to settle two class action lawsuits launched by shareholders over its accounting problems.

Meanwhile, Nortel also announced that after examining previous accounts with "a fine-tooth comb", it would be restating its results for 2003 for a second time, as well as those for 2004.

It added that it also expected to restate its previous financial results for 2005.

Nortel predicted the move would result in a $157m and $77m cut in revenues for 2003 and 2004 respectively and a drop of $91 and $93m respectively in income.

"Our priority is to have accurate financial information," Nortel chief executive and president Mike Zafirovski said.

"Although the need to restate certain financial statements is unfortunate, it's the right thing to do. This revenue is real - it was recognised in the wrong periods."

The restatement would not affect the company's cash position, he added.