According to the High Court of England and Wales, if you have a proprietary claim to assets which you say Lehmans in administration in the UK hold on your behalf you will need to wait your turn while the Administrators sort it out. Similar claims against the Lehman entities in provisional liquidation in Hong Kong could expect the Hong Kong Court to take a similarly pragmatic approach.

The English High Court1 has rejected a request by a fund for assistance in recovering assets held by Lehman Brothers International (Europe) (“LBIE”) under the terms of a Prime Brokerage Agreement and supplemental Deed of Amendment (together, the “documents”).


The assets comprised a US Treasury bill, together with the proceeds of a second US Treasury bill which had matured on 18 September 2008 (the “bills”), and which were believed to be held by Lehman Brothers Inc. (“LBI”) through a sub-custodial agreement with LBIE pursuant to the terms of the documents. LBIE entered administration on 15 September 2008, at which point the fund requested a transfer of the bills to a new custodian – which request was not complied with. Agreement was reached between the fund and the administrators that the proceeds of the matured bill would be transferred to a “disputes account” pending resolution of the issues. On 19 September 2008 LBI entered into insolvency proceedings in the US. The administrators of LBIE sought delivery of the bills from LBI and opened the disputes account, however, the bills were not received and no funds have been paid into the disputes account.

The fund sought directions that an application for an order that the administrators deliver up the bills be heard on an urgent basis.

The arguments

The fund explained to the Court that its application was urgent as it was due to publish its net asset value on 1 October 2008 and, if there was an issue as to its title to the bills or it could not recover them, the fund itself would go into suspense. It argued that, pursuant to the terms of the documents, the bills were excluded from collateral use by LBIE and therefore remained the property of the fund and should be delivered up to it. Although the bills stood as security for the fund’s liabilities to various Lehman companies, the requisite calculations of the net position would be straightforward.

The administrators argued that in effect the fund’s application was for the statutory moratorium imposed by the administration to be lifted to allow it to commence proceedings against LBIE for the delivery up of the bills. The moratorium was of particular importance in this case as it provided a breathing space within which the administrators could sort out the company’s affairs, LBIE’s administration being a complicated matter having, for example, in excess of 1,000 prime brokerage arrangements with assets held at some 60 different depositories most of which have not yet opened their books to the administrators.

In relation to LBIE's affairs, the administrators highlighted their statement to the market setting out the process by which they proposed to identify and return client money and assets, which had been agreed by the FSA. If applications such as this were allowed to proceed on an ad hoc basis it would prove immensely disruptive to the conduct of the administration in that it would force the administrators to focus on those claims where permission to proceed with legal proceedings had been given and it would encourage others to apply to the Court for the statutory stay to be lifted.

In any event, the bills were not in the possession of the administrators but were in the possession of LBI and so, even if the court was to make the order sought, it would not necessarily lead to delivery up of the bills to the fund.

The Order

The Court declined to make the order sought on two grounds. The fund’s application was for the return of what appeared to be its assets, which it is the job of the administrators to process and not for the judges of the High Court to take on. The Court was concerned about the precedent effect of granting the relief sought (the so called "floodgate" argument).

Further, as the bills appear to be in the hands of LBI, any order made would have to be that the company in administration should do what it could to get assets from the US and such an order would not necessarily lead to delivery up.

Permission to appeal was given.  

Although the Court clearly appreciated the difficulties faced by the fund, in an administration on this unprecedented scale, it came down in favour of leaving the administrators to prioritise the tasks facing them. The announcement by the administrators on 21 September 2008 states that they will update clients about progress on an ongoing basis. Clients affected by these issues should look out for further announcements in this area. 

If you would like any further information about this please speak to your usual contact in the Restructuring, Bankruptcy and Insolvency Group or contact:

John Marsden
JSM, Hong Kong
Tel: +852 2843 2584

David Allen
Mayer Brown International LLP, London
Tel: +44 (0)20 7782 8813

Ian McDonald
Mayer Brown International LLP, London
Tel: +44 (0)20 7782 8856




Devi Shah
Mayer Brown International LLP, London
Tel: +44 (0)20 7782 8669

David Morrison
Mayer Brown International LLP, London
Tel: +44 (0)20 7782 8876

Ashley Katz
Mayer Brown International LLP, London
Tel: +44 (0)20 7782 8818





1. RAB Capital Plc and (2) RAB Capital Market (Master) Fund v Lehman Brothers International (Europe), 22 September 2008.