Financial Regulatory Forum

Lehman Europe administrator to offer new asset plan after losing appeal

By Reuters Staff
November 6, 2009

The exterior of the world headquarters for Lehman Brothers is seen in New York September 15, 2008. REUTERS/Shannon Stapleton (UNITED STATES)   By Tom Freke
LONDON, Nov 6 (Reuters) – The administrator of Lehman Brothers’ European arm will proceed with a revised plan to return billions of hedge fund assets after a London appeal court on Friday rejected earlier proposals.

The bank’s failure last year — the biggest bankruptcy in U.S. history — left tens of billions of dollars of prime brokerage assets stuck in limbo, triggering a string of London court cases as clients and administrators seek court approval to unwind the bank’s holdings.

Administrator PricewaterhouseCoopers (PwC) said on Friday its new “contractual solution” to returning assets will be formally launched in the coming weeks. PwC first detailed the plan on Oct. 5 after a High Court ruling blocked a “scheme of arrangement” proposal.

PwC appealed against that decision but it was upheld by the Court of Appeal on Friday.

“I am disappointed by this ruling as it restricts the options available to the administrators for the return of client assets,” said Steven Pearson of PwC.

The scheme of arrangment had been opposed by the investment banks’ trade body, LIBA, which argued that trust assets could not be treated in the same way as debts owed to creditors.

“This important (appeal court) judgment prevents what could have been far-reaching and damaging implications for assets held on trust,” said Simon Orton of law firm Freshfields, which advised LIBA.

PwC’s Pearson said the alternative plan only binds clients that sign up to the proposals.

“In order to benefit from these arrangements it is vital that affected clients take the time to understand what is now being proposed and, by the end of the year, sign up to their terms,” Pearson said.

PwC said it had already returned more than $13 billion to Lehman’s European clients on a bilateral basis.

(Editing by Greg Mahlich) ((tom.freke@thomsonreuters.com; +44 (0)207 542 4036; Reuters Messaging: tom.freke.thomsonreuters.com@reuters.net))

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